Filed by Bowne Pure Compliance





Exhibit 10.6




Amended and Restated Credit Agreement




THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 30, 2008, by and among NGAS
RESOURCES, INC., a corporation organized under the laws of the Province of British Columbia
(“Holdings”), DAUGHERTY PETROLEUM, INC., a Kentucky corporation (the “Borrower”),
the several banks and other financial institutions or entities from time to time party to this
Agreement (the “Lenders”), and KEYBANK NATIONAL ASSOCIATION, as administrative agent (in
such capacity, the “Administrative Agent”).



RECITALS




WHEREAS, Holdings, the Borrower, the Lenders and the Administrative Agent entered into a
Credit Agreement dated as of September 8, 2006 (as previously amended or supplemented, the
“Existing Credit Agreement”);



WHEREAS, pursuant to the Existing Credit Agreement, the Lenders have made revolving loans to
the Borrower on the terms and conditions set forth therein (the “Existing Revolving
Loans”);



WHEREAS, the Borrower has requested that the Administrative Agent and the Lenders amend and
restate the Existing Credit Agreement (including the existing obligations and liabilities of the
Borrower thereunder);



WHEREAS, the Administrative Agent and the Lenders are willing to amend and restate the
Existing Credit Agreement and continue the Existing Revolving Loans upon the terms and conditions
set forth herein; and



WHEREAS, the Existing Revolving Loans and all of the other Obligations are and shall continue
to be secured by, among other things, the Existing Oil and Gas Mortgages (as defined herein) and
the other Security Documents, both now existing and hereafter coming into effect.



NOW, THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto,
such parties hereby agree to amend and restate the Existing Credit Agreement, and the Existing
Credit Agreement is hereby amended and restated in its entirety, as follows:



ARTICLE I




DEFINITIONS




Section 1.01. Defined Terms. As used in this Agreement, the terms listed in this
Section 1.01 shall have the respective meanings set forth in this Section 1.01.



“ABR” means, for any day, a rate per annum (rounded upwards, if necessary, to the next
1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 0.50%. For purposes hereof: “Prime Rate”
shall mean the rate of interest per annum publicly announced from time to time by the Reference
Lender as its prime rate in effect at its principal office in Cleveland, Ohio (the Prime Rate not
being intended to be the lowest rate of interest charged by the Reference Lender in connection with
extensions of credit to debtors). Any change in the ABR due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective as of the opening of business on the effective day
of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.



“ABR Loans” means Loans the rate of interest applicable to which is based upon the
ABR.



“Acceptable Lien” in any Property means a Lien which (a) is created by the Borrower or
any of its Restricted Subsidiaries in favor of the Administrative Agent, for the benefit of the
Secured Parties, (b) is superior to all Liens or rights of any other Person in the Property
encumbered thereby, other than applicable Permitted Liens, (c) secures the payment and performance
of the Obligations, and (d) is valid, perfected and enforceable.



“Additional Oil and Gas Mortgages” means all Oil and Gas Mortgages entered into by the
Borrower or any Restricted Subsidiary from time to time after the Closing Date.


 


 









 





“Additional Pipeline Mortgages” means all Pipeline Mortgages entered into by the
Borrower or any Restricted Subsidiary from time to time after the Post-Closing Date.



“Administrative Agent” means KeyBank National Association, as the administrative agent
for the Lenders under this Agreement and the other Loan Documents, and any of its successors.



“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.



“Affiliate” means, as to any Person, any other Person that, directly or indirectly, is
in control of, is controlled by, or is under common control with, such Person. For purposes of
this definition, “control” of a Person means the power, directly or indirectly, either to (a) vote
5% or more of the Equity Interests having ordinary voting power for the election of directors (or
persons performing similar functions) of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether through the ownership of Equity Interests, by
contract or otherwise.



“After-Acquired Oil and Gas Properties” has the meaning specified in
Section 6.11(b)(i).



“Aggregate Exposure” means, with respect to any Lender at any time, an amount equal to
the amount of such Lender’s Borrowing Base Commitment then in effect or, if the Commitments have
been terminated, the amount of such Lender’s Outstanding Credit at such time.



“Aggregate Exposure Percentage” means, with respect to any Lender at any time, the
ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate
Exposure of all Lenders at such time.



“Aggregate Outstanding Credit” means, at any time, the aggregate Outstanding Credit of
all Lenders at such time.



“Agreement” means this Credit Agreement.



“Anti-Terrorism Order” means Executive Order No. 13,224 of September 24, 2001,
Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or
Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.



“Applicable Margin” means, for any day, with respect to any Type of Loan, or with
respect to Unused Commitment Fees payable under this Agreement, as the case may be, the applicable
rate per annum set forth below under the column heading “Applicable Margin for Eurodollar Loans,”
“Applicable Margin for ABR Loans,” or “Unused Commitment Fee Rate,” as the case may be, based upon
the Conforming Borrowing Base Usage in effect on such date:





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Conforming	 	 	Applicable Margin	 	 	Unused	 	 	 	 
	 	 	Borrowing Base	 	 	for Eurodollar	 	 	Commitment	 	 	Applicable Margin	 
	Level	 	Usage	 	 	Loans	 	 	Fee Rate	 	 	for Base Rate Loans	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	I
	 	 	< 40%	 	 	 	1.50	%	 	 	0.375	%	 	 	0.00	%
	II
	 	 	3 40% < 75%	 	 	 	1.75	%	 	 	0.375	%	 	 	0.25	%
	III
	 	 	3 75% < 90%		 	 	2.00	%	 	 	0.500	%	 	 	0.50	%
	IV
	 	 	3 90% <100%	 	 	 	2.50	%	 	 	0.500	%	 	 	0.75	%
	V
	 	 	3 100%	 	 	 	3.00	%	 	 	0.500	%	 	 	1.00	%





Each change in the Applicable Margin for Eurodollar Loans, the Applicable Margin for ABR Loans, and
the Unused Commitment Fee Rate shall apply during the period commencing on the effective date of
such change and ending on the date immediately preceding the effective date of the next change. If
an Event of Default exists, the Applicable Margin and the Unused Commitment Fee Rate shall be at
Level V.


 


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“Applicable Percentage” means, with respect to any Lender at any time, the percentage
(carried out to the ninth decimal place) of the aggregate Commitments represented by such Lender’s
Commitment at such time. If the Commitment of each Lender to make Loans and the obligation of the Issuing Bank to issue
Letters of Credit have been terminated pursuant to Section 8.01, or if the Commitments have
expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable
Percentage of such Lender most recently in effect, giving effect to any subsequent assignments.
The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on
Schedule 1.01A or in the Assignment and Assumption pursuant to which such Lender becomes a
party hereto, as applicable.



“Application” means an application, in such form as the Issuing Bank may specify from
time to time, requesting the Issuing Bank to open a Letter of Credit.



“Approved Counterparty” means, with respect to any Approved Farmout Agreement or any
Approved Participation Agreement at any time, any Person that is a party to such Approved Farmout
Agreement or such Approved Participation Agreement (other than the Borrower or any Restricted
Subsidiary) and which (a) is not subject to a Solvency Event at such time and (b) has not
defaulted, or otherwise failed to perform any of its payment, assignment, or other material
obligations, under such Approved Farmout Agreement or Approved Participation Agreement at such
time.



“Approved Farmout Agreement” means, at any time, any Farmout Agreement between or
among one or more Approved Counterparties, as farmors, and the Borrower or any Restricted
Subsidiary, as farmee, a complete and correct executed copy of which has been delivered to the
Administrative Agent, which is (a) in form and substance reasonably satisfactory to the
Administrative Agent, (b) if required by the Administrative Agent, subject to a Farmout Agreement
Consent at such time, (c) valid, binding and enforceable against all parties thereto in accordance
with its respective terms at such time, and (d) not in default or otherwise subject to termination
or rescission at such time as a result of any act or omission of the Borrower or any Restricted
Subsidiary.



“Approved Farmout Property” means, at any time, any Farmout Property which has been
assigned by one or more Approved Counterparties to the Borrower or any Restricted Subsidiary
pursuant to an Approved Farmout Agreement and a valid, binding and enforceable Farmout Property
Assignment which has been prepared, executed, delivered and recorded in accordance with such
Approved Farmout Agreement and which Farmout Property is, in the determination of the
Administrative Agent, (a) adequately described for purposes of creating and maintaining an
Acceptable Lien therein, and (b) not subject to any litigation, claim, or other proceeding which
challenges or disputes the Borrower’s or such Restricted Subsidiary’s rights, title or interests
therein.



“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender, or (c) an entity or Affiliate of an entity that administers or manages a
Lender.



“Approved Hedge Counterparty” means, at any time, (a) any Person engaged in the
business of buying, selling and dealing in Hedge Agreements that is acceptable to the
Administrative Agent and (i) has and maintains, or (ii) has a guarantor or other credit support
provider that is acceptable to the Administrative Agent and has and maintains, a Credit Rating of
A- or better from S&P or A3 or better from Moody’s and (b) any Hedge Bank.



“Approved Participation Agreement” means, at any time, any Participation Agreement
between or among one or more Approved Counterparties and the Borrower or any Restricted Subsidiary,
a complete and correct executed copy of which has been delivered to the Administrative Agent, which
is (a) in form and substance reasonably satisfactory to the Administrative Agent, (b) if required
by the Administrative Agent, subject to a Participation Agreement Consent at such time, (c) valid,
binding and enforceable against all parties thereto in accordance with its respective terms at such
time, and (d) not in default or otherwise subject to termination or rescission at such time as a
result of any act or omission of the Borrower or any Restricted Subsidiary.



“Approved Participation Property” means, at any time, any Participation Property which
have been assigned by one or more Approved Counterparties to the Borrower or any Restricted
Subsidiary pursuant to an Approved Participation Agreement and a valid, binding and enforceable
Participation Property Assignment which has been prepared, executed, delivered and recorded in
accordance with such Approved Participation Agreement and which Participation Property is, in the
determination of the Administrative Agent, (a) adequately described for purposes of creating and
maintaining an Acceptable Lien therein, and (b) not subject to any litigation, claim, or other
proceeding which challenges or disputes the Borrower’s or such Restricted Subsidiary’s rights,
title or interests therein.



“Arranger” means KeyBank, in its capacity as sole lead arranger and sole bookrunner
hereunder.


 


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“Assignment and Assumption” means an Assignment and Assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required by Section 10.06),
and accepted by the Administrative Agent), in substantially the form of Exhibit E or any
other form approved by the Administrative Agent.



“Attributable Indebtedness” means, on any date, (a) in respect of any Capitalized
Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such
Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease
Obligation, the capitalized amount of the remaining lease or similar payments under the relevant
lease or other applicable agreement or instrument that would appear on a balance sheet of such
Person prepared as of such date in accordance with GAAP if such lease or other agreement or
instrument were accounted for as a Capital Lease Obligation, and (c) all Synthetic Debt of such
Person.



“Availability” means, at any time, an amount equal to the lesser of (a) the Total
Commitments then in effect minus the Aggregate Outstanding Credit, and (b) the Borrowing
Base then in effect minus the Aggregate Outstanding Credit.



“Available Commitment” means, as to any Lender at any time, an amount equal to the
excess, if any, of (a) such Lender’s Commitment then in effect over (b) such Lender’s
Credit Extensions then outstanding.



“Board” means the Board of Governors of the Federal Reserve System of the United
States (or any successor).



“Borrower” has the meaning specified in the preamble hereto.



“Borrowing Base” means at any particular time, the Dollar amount determined in
accordance with Section 2.02 on account of (a) Proved Properties owned by the Borrower or any
Restricted Subsidiary that are subject to Acceptable Liens created pursuant to Oil and Gas
Mortgages and other applicable Security Documents in favor of the Administrative Agent, for the
benefit of the Secured Parties, and that are described in the most recent Engineering Report
delivered to the Administrative Agent and the Lenders pursuant to Section 2.02, (b) Approved
Farmout Properties owned by the Borrower or any Restricted Subsidiary that are subject to
Acceptable Liens created pursuant to Oil and Gas Mortgages and other applicable Security Documents
in favor of the Administrative Agent, for the benefit of the Secured Parties, and that are
described in the most recent Engineering Report and Farmout/Participation Property Certificate
delivered to the Administrative Agent and the Lenders pursuant to Section 2.02, (c) Approved
Participation Properties owned by the Borrower or any Restricted Subsidiary that are subject to
Acceptable Liens created pursuant to Oil and Gas Mortgages and other applicable Security Documents
in favor of the Administrative Agent for the benefit of the Secured Parties and that are described
in the most recent Engineering Report and Farmout/Participation Property Certificate delivered to
the Administrative Agent and the Lenders pursuant to Section 2.02, and (d) Open-Access Pipeline
Properties owned by the Borrower and its Restricted Subsidiaries and that are subject to Acceptable
Liens created pursuant to Pipeline Mortgages and other applicable Security Documents in favor of
the Administrative Agent, for the benefit of the Secured Parties.



“Borrowing Base Availability” means, at any time, for any Lender, an amount equal to
(a) such Lender’s Borrowing Base Commitment minus (b) such Lender’s Outstanding Credit.



“Borrowing Base Availability Percentage” means, at any time, for any Lender, the
quotient, expressed as a percentage, of (a) such Lender’s Borrowing Base Availability divided
by (b) Total Borrowing Base Availability.



“Borrowing Base Commitment” means, as to any Lender on any date, such Lender’s
Applicable Percentage of the Borrowing Base on such date, subject to adjustment pursuant to
Section 2.02(d)(vi). The aggregate amount of all Borrowing Base Commitments on the Closing Date is
$75,000,000.



“Borrowing Base Commitment Percentage” means, as to any Lender, the percentage of the
Borrowing Base represented by such Lender’s Borrowing Base Commitment, as adjusted from time to
time in accordance with this Section 2.02 of the Agreement



“Borrowing Base Increase” means any increase (or proposed increase) in the amount of
the Borrowing Base pursuant to a redetermination made in accordance with Section 2.02.


 


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“Borrowing Base Properties” means, at any time, all Proved Properties, all Approved
Farmout Properties, all Approved Participation Properties, and all Open-Access Pipeline Properties,
in each case as and to the extent included in the Borrowing Base at such time in accordance with
Section 2.02.



“Borrowing Date” means any Business Day specified by the Borrower as a date on which
the Borrower requests the Lenders to make Loans hereunder.



“Business” has the meaning specified in Section 5.16.



“Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in Cleveland, Ohio, are authorized or required by law to close, provided,
that with respect to notices and determinations in connection with, and payments of principal and
interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar
deposits in the interbank eurodollar market.



“Capital Lease Obligations” means, as to any Person, the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real
or personal property, or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes
of this Agreement, the amount of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.



“Cash” or “cash” means money, currency or a credit balance in a deposit
account.



“Cash Collateralize” means to pledge and deposit with or deliver to the Administrative
Agent, for the benefit of the Secured Parties, Cash in an amount equal to the then outstanding LC
Obligations, pursuant to documentation in form and substance satisfactory to the Administrative
Agent and the Issuing Bank (which documents are hereby consented to by the Lenders). Derivatives
of such term shall have corresponding meanings.



“Cash Equivalents” means any of the following:



(a) marketable direct obligations issued by, or unconditionally guaranteed by, the United
States Government or issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of acquisition;



(b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank
deposits having maturities of six months or less from the date of acquisition issued by any Lender
or by any commercial bank organized under the laws of the United States or any state thereof having
combined capital and surplus of not less than $500,000,000;



(c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody’s, or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally, and maturing within six
months from the date of acquisition;



(d) fully collateralized repurchase obligations of any Lender or of any commercial bank
satisfying the requirements of clause (b) of this definition, having a term of not more than 30
days, with respect to securities issued or fully guaranteed or insured by the United States
government;



(e) securities with maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States, or by any political
subdivision or taxing authority of any such state, commonwealth or territory the securities of
which state, commonwealth, territory, political subdivision, or taxing authority (as the case may
be) are rated at least A by S&P or A by Moody’s;



(f) securities with maturities of six months or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial bank satisfying the requirements
of clause (b) of this definition;



(g) shares of money market mutual or similar funds that invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition; or


(h) shares of money market mutual funds that (i) comply with the criteria set forth in SEC
Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P or Aaa by Moody’s,
and (iii) have portfolio assets of at least $5,000,000,000.



 


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“CBT Controlled Accounts” means deposit accounts numbered 001-0312999, 001-0312964,
and 001-0312956, respectively, established by the Borrower and maintained with Central Bank & Trust
Co., which deposit accounts are subject to the Deposit Account Control Agreement dated as of
September 8, 2006, among Central Bank & Trust Co., as Depository Bank, the Borrower, as Grantor,
and the Administrative Agent, as Secured Party.



“CB&T” means Central Bank & Trust Co., a Kentucky banking corporation, and its
successors and assigns.



“CB&T Note” means the Commercial Note dated September 28, 2007, made by the Borrower
and payable to the order of CB&T in the original principal amount of $2,100,000, as in effect on
the Closing Date.



“Change in Law” means the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change
in any law, rule, regulation or treaty or in the administration, interpretation or application
thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or
directive (whether or not having the force of law) by any Governmental Authority.



“Closed-Access Pipeline Properties” means all Pipeline Properties other than
Open-Access Pipeline Properties.



“Closing Date” means the date on which the conditions precedent set forth in
Section 4.01 shall have been satisfied.



“Code” means the Internal Revenue Code of 1986, as amended from time to time.



“Collateral” means all property of the Loan Parties, now owned or hereafter acquired,
upon which a Lien is purported to be created by any Security Document.



“Collateral Account” has the meaning specified in the Guarantee and Collateral
Agreement.



“Commitment” means, as to any Lender, the obligation of such Lender, if any, to make
Loans and/or issue or participate in Letters of Credit under this Agreement, in an aggregate
principal and/or face amount not to exceed the amount set forth under the heading “Commitment”
opposite such Lender’s name on Schedule 1.01A or in the Assignment and Assumption pursuant
to which such Lender became a party hereto, as the same may be changed from time to time pursuant
to the terms hereof. The original aggregate amount of the Total Commitments on the Closing Date is
$75,000,000.



“Commitment Period” means the period from and including the Closing Date to, but not
including, the Termination Date.



“Commonly Controlled Entity” means an entity, whether or not incorporated, that is
under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a
group that includes the Borrower and that is treated as a single employer under Section 414 of the
Code.



“Compliance Certificate” means a certificate duly executed and property completed by a
Responsible Officer substantially in the form of Exhibit L, or in such other form as may be
required by the Administrative Agent.



“Confidential Information Memorandum” means the Confidential Information Memorandum
dated November 2007, prepared by KeyBanc Capital Markets with respect to the Borrower and furnished
to any Lender.



“Conforming Borrowing Base” means, at any time, the dollar amount determined in
accordance with Section 2.02(e).



“Conforming Borrowing Base Usage” means, as of any date and for all purposes, the
quotient, expressed as a percentage of (a) the Aggregate Outstanding Credit as of such date,
divided by (b) the Conforming Borrowing Base as of such date.


 


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“Consolidated Current Assets” means, at any date, the total of (a) all amounts that
would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any
like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date,
plus (b) the Availability existing at such date, less (iii) any non-cash assets required to be
included in the consolidated current assets of the Borrower and its Subsidiaries as a result of the
application of SFAS 133 as of such date.



“Consolidated Current Liabilities” means, at any date, the total of (a) all amounts
that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities”
(or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such
date, but excluding all Indebtedness consisting of Loans to the extent otherwise included therein,
less (b) any non-cash obligations required to be included in the consolidated current liabilities
of the Borrower and its Subsidiaries as a result of the application of SFAS 133 as of such date.



“Consolidated EBITDA” means, for any period, Consolidated Net Income for such period
plus, without duplication and to the extent deducted in determining such Consolidated Net
Income for such period, the sum of (a) cash interest expense (including cash distributed to
Holdings to pay interest due and payable on the NGAS Convertible Notes), (b) income tax expense,
(c) depreciation and depletion expense, (d) amortization expense, (e) any non-cash losses or
charges on any Hedge Agreement resulting from the requirements of SFAS 133 for such period; and
minus, to the extent included in determining such Consolidated Net Income for such period,
the sum of (a) interest income, (b) any non-cash gains on any Hedge Agreements resulting from the
requirements of SFAS 133 for such period, (c) any extraordinary income or gains in accordance with
GAAP, (d) income tax credits (to the extent not netted from income tax expense) and (e) any other
non-cash income, all as determined on a consolidated basis. For the purposes of calculating
Consolidated EBITDA for any period of four consecutive Fiscal Quarters (each, a “Reference
Period”) pursuant to any determination of the Consolidated Leverage Ratio, (i) if at any time
during such Reference Period the Borrower or any Subsidiary shall have made any Material
Disposition, the Consolidated EBITDA for such Reference Period shall be reduced by an amount equal
to the Consolidated EBITDA (if positive) attributable to the Property that is the subject of such
Material Disposition for such Reference Period or increased by an amount equal to the Consolidated
EBITDA (if negative) attributable thereto for such Reference Period and (ii) if during such
Reference Period the Borrower or any Subsidiary shall have made a Material Acquisition,
Consolidated EBITDA for such Reference Period shall be calculated after giving pro forma effect
thereto as if such Material Acquisition occurred on the first day of such Reference Period. As
used in this definition, “Material Acquisition” means any acquisition of Property or series of
related acquisitions of Property that (a) constitutes assets comprising all or substantially all of
an operating unit of a business or constitutes all or substantially all of the common stock of a
Person and (b) involves the payment of consideration by the Borrower and its Subsidiaries in excess
of $5,000,000; and “Material Disposition” means any Disposition of Property or series of related
Dispositions of Property that yields gross proceeds to the Borrower or any of its Subsidiaries in
excess of $5,000,000.



“Consolidated Funded Indebtedness” means, at any date, the aggregate amount of all
Funded Indebtedness of Holdings, the Borrower and its Subsidiaries at such date (excluding all
Funded Indebtedness outstanding under the NGAS Convertible Notes as of such date but including all
other Funded Indebtedness of Holdings outstanding as of such date).



“Consolidated Interest Coverage Ratio” means, for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period.



“Consolidated Interest Expense” means, for any period, (a) total cash interest expense
(including that attributable to Capital Lease Obligations, Synthetic Lease Obligations, and
Synthetic Debt) of the Borrower and its Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its Subsidiaries (including all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers’ acceptance
financing, net costs under Hedge Agreements in respect of interest rates to the extent such net
costs are allocable to such period in accordance with GAAP) plus (b) all cash interest
expense of Holdings for such period with respect to the NGAS Convertible Notes and any other
Indebtedness of Holdings.



“Consolidated Leverage Ratio” means, as at the last day of any period, the ratio of
(a) Consolidated Funded Indebtedness on such day to (b) Consolidated EBITDA for such period.


 


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“Consolidated Net Income” means, for any period, the consolidated net income (or loss)
of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP;
provided that there shall be excluded (a) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with
the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such income is actually
received by the Borrower or such Subsidiary in the form of cash dividends or similar cash
distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent
that the declaration or payment of dividends or similar distributions by such Subsidiary is not at
the time permitted by the terms of any Contractual Obligation (other than under any Loan Document)
or Requirement of Law applicable to such Subsidiary.



“Continuing Directors” means the directors of Holdings on the Closing Date, and each
other director, if, in each case, such other director’s nomination for election to the board of
directors of Holdings is recommended by at least 66-2/3% of the then Continuing Directors.



“Contractual Obligation” means, as to any Person, any provision of any security issued
by such Person or of any agreement, instrument or other undertaking to which such Person is a party
or by which it or any of its property is bound.



“Credit Extension” means (a) the making of any Loan by any Lender and (b) the issuance
of any Letter of Credit by the Issuing Bank.



“Credit Rating” means, with respect to any Person on any date of determination, the
respective rating then assigned to its unsecured and senior long-term debt or deposit obligations
or (not supported by third party credit enhancement) by S&P, Moody’s, or any other nationally
recognized statistical rating agency acceptable to the Administrative Agent.



“Default” means any of the events specified in Section 8.01, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been satisfied.



“Default Rate” means (a) when used with respect to Obligations other than Letter of
Credit fees payable pursuant to Section 3.03(a), an interest rate equal to (i) the ABR plus
the Applicable Margin for ABR Loans plus (ii) 2% per annum, provided,
however, that with respect to a Eurodollar Loan, the Default Rate shall be an interest rate
equal to the interest rate (including any Applicable Margin) otherwise applicable to such Loan
plus 2% per annum and (b) when used with respect to Letter of Credit fees payable pursuant
to Section 3.03(a), a rate equal to the Applicable Margin for Eurodollar Loans plus 2% per
annum.



“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the
Loans or participations in LC Obligations required to be funded by it hereunder within one Business
Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the
Administrative Agent or any other Lender any other amount required to be paid by it hereunder
within one Business Day of the date when due, unless the subject of a good faith dispute, or (c)
has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.



“Deficiency Notice” has the meaning as specified in Section 2.07(a).



“Disbursement Letter” means the Disbursement Letter to be executed and delivered by
the Borrower, substantially in the form of Exhibit H.



“Disposition” means with respect to any property, any sale, lease, license, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof. The terms
“Dispose” and “Disposed of” shall have correlative meanings.



“Dollars” and “$” means dollars in lawful currency of the United States.



“Drilling Program” means any drilling, developing and operating partnership or similar
arrangement between the Borrower and any Drilling Program Partnership which is created and
structured by the Borrower, each such Drilling Program Partnership being owned 99% by subscribers
for its units of limited or general partner interests, as investors, and 1% by the Borrower, as the
managing general partner, the proceeds of which are contributed by the Drilling Program Partnership
to the associated Drilling Program, along with the Borrower’s capital contribution, and applied by
the Drilling Program to drill Hydrocarbon development or exploratory wells on drilling sites
selected and assigned to the Drilling Program by the Borrower from its inventory of drilling
prospects in the Appalachian Basin and other gas basins where it holds Hydrocarbon Interests.


 


7









 





“Drilling Program Agreements” means, with respect to any Drilling Program, the
collective reference to the limited partnership agreement of the Drilling Program Partnership
relating to such Drilling Program, the general partnership agreement of the Drilling Program
between the Drilling Program Partnership and the Borrower, as manager, all assignments of drilling
rights from the Borrower to the Drilling Program, all joint drilling and operating agreements to
which the Borrower is a party relating to the Drilling Program, all investor subscription
agreements to which the Drilling Program Partnership is a party relating to the Drilling Program,
and all other agreements, contracts, instruments and documents governing, evidencing or relating to
such Drilling Program, in each case as any of the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the Loan Documents, including, without
limitation, all rights of the Borrower to (i) receive moneys due and to become due to it thereunder
or in connection therewith, (ii) damages arising thereunder or in connection therewith and (iii)
perform thereunder and to compel performance and otherwise exercise rights and remedies thereunder.



“Drilling Program Partnership” means any limited partnership created by the Borrower
as part of any Drilling Program of which the Borrower is the managing general partner and that is a
party to one or more Drilling Program Agreements.



“Earned Farmout Interests” means (a) with respect to any Existing Farmout Agreement,
all “Earned Interests” (as defined in the Existing Farmout Agreement Consent relating to such
Existing Farmout Agreement) and (b) with respect to any other Farmout Agreement, all rights, titles
and interests of the Borrower or any Restricted Subsidiary in and to any Proved Reserves and
related Property and rights that are assigned by an Approved Counterparty to the Borrower or any
Restricted Subsidiary pursuant to a Farmout Property Assignment.



“Earned Participation Interests” means (a) with respect to the Existing Participation
Agreement, all working interests and net revenue interests in oil and gas wells drilled by the
Borrower that are assigned to the Borrower by Hard Rock Exploration, Inc. pursuant to any
Assignments (as defined in such Existing Participation Agreement) and (b) with respect to any other
Participation Agreement, all right, title and interest of the Borrower or any Restricted Subsidiary
in and to any Proved Reserves and related Property and rights that are assigned by the Approved
Counterparty to the Borrower or any Restricted Subsidiary pursuant to a Participation Property
Assignment.



“Electing Lender” has the meaning specified in Section 2.02.



“Engineering Report” means an Independent Engineering Report or an Internal
Engineering Report.



“Environmental Laws” means any and all foreign, Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any
Governmental Authority or other Requirements of Law (including common law) regulating, relating to
or imposing liability or standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.



“Environmental Liability” means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the
Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any contract, agreement
or other consensual arrangement pursuant to which liability is assumed or imposed with respect to
any of the foregoing.



“Equity Interests” means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrant, options or other rights entitling the holder thereof to
purchase or acquire any such equity interest.



“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from
time to time.



“Eurocurrency Reserve Requirements” means for any day as applied to a Eurodollar Loan,
the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of
reserve requirements in effect on such day (including basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a
member bank of the Federal Reserve System.


 


8









 





“Eurodollar Base Rate” means, with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate per annum equal to the British Bankers Association LIBOR
Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source
providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at
approximately 11:00 a.m., London time, determined on the basis of the rate for deposits in Dollars
for a period equal to such Interest Period commencing on the first day of such Interest Period two
(2) Business Days prior to the beginning of such Interest Period. In the event that such rate is
not available at such time for any reason, the “Eurodollar Base Rate” for such Interest
Period shall be the rate per annum determined by reference to such other comparable publicly
available service for displaying eurodollar rates as may be selected by the Administrative Agent
or, in the absence of such availability, by reference to the rate at which the Administrative Agent
is offered Dollar deposits at or about 11:00 A.M., New York City time, two (2) Business Days prior
to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar
and foreign currency and exchange operations are then being conducted for delivery on the first day
of such Interest Period for the number of days comprised therein.



“Eurodollar Loans” means Loans the rate of interest applicable to which is based upon
the Eurodollar Rate.



“Eurodollar Rate” means, with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th of 1%):



Eurodollar Base Rate

 1.00 — Eurocurrency Reserve Requirements





“Eurodollar Tranche” means the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same date and end on the same
later date (whether or not such Loans shall originally have been made on the same day).



“Event of Default” means any of the events specified in Section 8.01, provided
that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.



“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of
the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however
denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction
(or any political subdivision thereof) under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which its applicable
lending office is located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the
case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.20), any withholding tax that is imposed on amounts payable to such Foreign Lender at the
time such Foreign Lender becomes a party hereto (or designates a new lending office) or is
attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in
Law) to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its
Assignor, if any) was entitled, at the time of designation of a new lending office (or assignment),
to receive additional amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.16(a). Notwithstanding anything to the contrary contained herein, Taxes (including
withholding taxes) imposed by Canada or any Province or any political subdivision thereof shall not
constitute Excluded Taxes.



“Existing Farmout Agreements” means the collective reference to (a) the Farmout
Agreement, dated December 11, 2002, among Equitable Production Company and KRCC Oil & Gas, LLC, as
Farmors, and the Borrower, as Farmee, (b) the Farmout Agreement, dated April 12, 1996, between
Equitable Resources Energy Company, as Farmor, and the Borrower, as Farmee, and (c) the Farmout
Agreement, dated October 3, 1997, between Equitable Resource Energy Company, as Farmor, and the
Borrower, as Farmee, in each case, with all schedules, exhibits and annexes thereto, and each as
amended and supplemented through and including the Closing Date.



“Existing Farmout Agreement Consents” means the collective reference to (a) that
certain letter agreement, dated as of May 30, 2008, among Equitable Production Company and KRCC Oil
& Gas, LLC, the Borrower and the Administrative Agent, pertaining to that certain Farmout
Agreement, dated December 11, 2002, among Equitable Production Company and KRCC Oil and Gas, LLC,
as Farmors, and the Borrower, as Farmee, (b) that certain letter agreement, dated as of May 30,
2008, among Equitable Resources Energy Company, the Borrower and the Administrative Agent,
pertaining to that certain Farmout Agreement, dated April 12, 1996, between Equitable
Resources Energy Company, as Farmor, and the Borrower, as Farmee, and (c) that certain letter
agreement, dated as of May 30, 2008, among Equitable Resources Energy Company, the Borrower and the
Administrative Agent, pertaining to that certain Farmout Agreement, dated October 3, 1997, between
Equitable Resources Energy Company, as Farmor, and the Borrower, as Farmee.


 


9









 





“Existing Lease” shall mean any Lease to which the Borrower or any Restricted
Subsidiary is a party on or prior to the Closing Date.



“Existing Oil and Gas Mortgages” means the collective reference to any Oil and Gas
Mortgage entered into by the Borrower in favor of the Administrative Agent, for the benefit of the
Secured Parties, prior to the Closing Date under and in connection with the Existing Credit
Agreement.



“Existing Participation Agreements” means the collective reference to (a) that certain
letter agreement, dated March 30, 2007, between Hard Rock Exploration, Inc. and the Borrower,
including Schedule A and all exhibits thereto, as amended by the letter agreement, dated
August 27, 2007, between Hard Rock Exploration, Inc. and the Borrower, and as further amended and
supplemented through and including the Closing Date, (b) that certain letter agreement, dated March
25, 2008, between Hard Rock Exploration, Inc. and the Borrower, as further amended and supplemented
through and including the Closing Date and (c) each Drilling and Operating Agreement, dated on or
before the Closing Date, between Hard Rock Exploration, Inc. and the Borrower, in substantially the
form of either Exhibit A to the letter agreement described in clause (a) above or Annex
A to the letter agreement described in clause (b) above, together with all schedules and
exhibits thereto, in each case as amended and supplemented prior to the Closing Date.



“Farmout Agreement” means each Existing Farmout Agreement and any other farmout
agreement or other similar agreement (together with all exhibits and schedules thereto) by or among
any Approved Counterparty, as Farmor, and the Borrower or any Restricted Subsidiary, as Farmee (a)
covering or relating to Proved Reserves and related Property rights and interests owned by such
Approved Counterparty and (b) pursuant to which the Borrower or such Restricted Subsidiary has or
obtains by assignment rights, title and interests in and to such Proved Reserves and related
Property rights and interests which interests are, in the determination of the Administrative Agent
and the Lenders, interests in personal Property, as opposed to interests in real Property, under
applicable state law.



“Farmout Agreement Consent” means each Existing Farmout Agreement Consent and any
other agreement, in form and substance satisfactory to the Administrative Agent and the Lenders,
among one or more Approved Counterparties, the Borrower or any Restricted Subsidiary, and the
Administrative Agent, for the benefit of the Secured Parties, relating to any Farmout Agreement and
Farmout Agreement Assignments made or to be made under or pursuant to such Farmout Agreement and
consenting to the creation, maintenance, perfection, priority and enforcement of the Liens and
other rights and remedies of the Secured Parties in and to any such Loan Party’s rights, titles and
interests in and to the Farmout Properties described or referenced therein.



“Farmout/Participation Property Certificate” means, at any time, a certificate,
substantially in the form of Exhibit Q hereto (together with each exhibit thereto),
prepared by the Borrower, certified by a Responsible Officer of the Borrower and addressed to the
Administrative Agent and the Lenders, with respect to the Farmout Agreements, Farmout Property
Assignments, Farmout Properties, Farmout Agreement Consents, Participation Agreements,
Participation Properties and Participation Agreement Consents, of the Borrower or any Restricted
Subsidiary or to which the Borrower or any Restricted Subsidiary is a party at such time.



“Farmout Properties” means all rights, titles and interests of the Borrower and any
Restricted Subsidiary in and to any Earned Farmout Interests that have been assigned and
transferred to the Borrower or such Restricted Subsidiary pursuant to any Farmout Agreement and any
Farmout Property Assignment.



“Farmout Property Assignment” means, with respect to any Farmout Agreement, an
assignment, substantially in the form attached as an exhibit to such Farmout Agreement and
otherwise in form and substance satisfactory to the Administrative Agent, and prepared, executed
and delivered by one or more Approved Counterparties, as assignors, and the Borrower or any
Restricted Subsidiary, as assignee, and providing for and evidencing the assignment of one or more
Farmout Properties described therein to the Borrower or such Restricted Subsidiary, pursuant to and
in accordance with such Approved Farmout Agreement.



“FASB” means the Financial Accounting Standards Board, and any successor thereto.


 


10









 





“Federal Funds Effective Rate” means, for any day, the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business Day, the average
of the quotations for the day of such transactions received by the Reference Lender from three
federal funds brokers of recognized standing selected by it.



“Fee Letter” means the letter agreement, dated on or about May 30, 2008, among the
Borrower, the Administrative Agent and the Arranger.



“Fiscal Quarter” means any of the four quarters of any Fiscal Year.



“Fiscal Year” means the fiscal year of the Borrower and its Subsidiaries ending on
December 31 in any calendar year.



“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is resident for tax purposes. For purposes of this
definition, the United States of America, each State thereof and the District of Columbia shall be
deemed to constitute a single jurisdiction.



“Fund” means any Person (other than a natural person) that is (or will be) engaged in
making, purchasing, holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course of its business.



“Funded Indebtedness” means, as to any Person, all Indebtedness of such Person that
matures more than one (1) year from the date of its creation or matures within one year from such
date but is renewable or extendible, at the option of such Person, to a date more than one year
from such date or arises under a revolving credit or similar agreement that obligates the lender or
lenders to extend credit during a period of more than one year from such date, including all
current maturities and current sinking fund payments in respect of such Indebtedness whether or not
required to be paid within one year from the date of its creation and, in the case of the Borrower,
Indebtedness in respect of the Loans.



“Funding Office” means the principal office of the Administrative Agent in Cleveland,
Ohio or such other office as may be specified from time to time by the Administrative Agent as its
funding office by written notice to the Borrower and the Lenders.



“GAAP” means generally accepted accounting principles in the United States as in
effect from time to time, except that for purposes of Section 7.01, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those used in the
preparation of the most recent audited financial statements referred to in Section 5.01. In the
event that any “Accounting Change” (as defined below) shall occur and such change results in a
change in the method of calculation of financial covenants, standards or terms in this Agreement,
then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend
such provisions of this Agreement so as to reflect equitably such Accounting Changes with the
desired result that the criteria for evaluating the Borrower’s financial condition shall be the
same after such Accounting Changes as if such Accounting Changes had not been made. Until such
time as such an amendment shall have been executed and delivered by the Borrower, the
Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this
Agreement shall continue to be calculated or construed as if such Accounting Changes had not
occurred. “Accounting Changes” refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by FASB or, if applicable, the SEC.



“Governmental Authority” means any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government (including any supra-national bodies such as the European
Union or the European Central Bank), any securities exchange and any self-regulatory organization
(including the National Association of Insurance Commissioners).



“Group Members” means the collective reference to Holdings, the Borrower and their
respective Subsidiaries.


 


11









 





“Guarantee Obligation” means, as to any Person (the “Guaranteeing Person”),
any obligation of (a) the Guaranteeing Person or (b) another Person (including any bank under any
letter of credit) to induce the creation of
which the Guaranteeing Person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the “primary obligations”) of any other third Person (the
“primary obligor”) in any manner, whether directly or indirectly, including any obligation
of the Guaranteeing Person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to advance or supply funds
(1) for the purchase or payment of any such primary obligation or (2) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any
such primary obligation against loss in respect thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any Guaranteeing Person shall be
deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for
which such Guaranteeing Person may be liable pursuant to the terms of the instrument embodying such
Guarantee Obligation, unless such primary obligation and the maximum amount for which such
Guaranteeing Person may be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such Guaranteeing Person’s maximum reasonably anticipated liability
in respect thereof as determined by the Borrower in good faith.



“Guarantee and Collateral Agreement” means the Amended and Restated Guarantee and
Collateral Agreement, dated on or about the Closing Date, to be executed and delivered by the
Borrower and each Restricted Subsidiary, substantially in the form of Exhibit A.



“Guarantors” means the collective reference to Holdings and the Restricted
Subsidiaries.



“Hazardous Materials” means (a) petroleum or petroleum products, by-products or
breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls
and radon gas and (b) any other chemicals, materials or substances designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.



“Hedge Agreement” means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement, whether exchange-traded, “over-the-counter”
or otherwise, and whether settled in cash or settled by physical delivery (including any agreement
with respect to any forward purchase or sale of any Hydrocarbons), involving, or settled by
reference to, one or more rates, currencies, commodities, equity or debt instruments or securities,
or economic, financial or pricing indices or measures of economic, financial or pricing risk or
value or any similar transaction or any combination of these transactions.



“Hedge Bank” means any Lender or any Affiliate of a Lender that is a counterparty to a
Hedge Agreement with the Borrower or any Restricted Subsidiary.



“Hedge Bank Obligations” means all obligations of the Borrower or any Restricted
Subsidiary arising from time to time under any Hedge Agreement with a Hedge Bank; provided
that (a) if such Hedge Bank ceases to be a Lender or an Affiliate of a Lender hereunder, the Hedge
Bank Obligations owed to such Hedge Bank shall no longer be secured or guaranteed under any Loan
Document and (b) for any Hedge Bank Obligations to be secured or guaranteed under any Loan
Document, the applicable Hedge Bank (other than KeyBank or an Affiliate of KeyBank) must have
provided the Administrative Agent written notice of the existence thereof and such transaction must
not otherwise be prohibited under this Agreement.



“Hedge Termination Value” means, in respect of any one or more Hedge Agreements, after
taking into account the effect of any legally enforceable netting agreement contained in or
relating to such Hedge Agreements, (a) for any date on or after the date such Hedge Agreements have
been closed out and termination value(s) determined in accordance therewith, such termination
value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined
as the mark-to-market value(s) for such Hedge Agreements, as determined based upon one or more
mid-market or other readily available quotations provided by any recognized dealer in such Hedge
Agreements (which may include a Lender or any Affiliate of a Lender).



“Highest Lawful Rate” means, with respect to the Administrative Agent, the Issuing
Bank or any Lender, the maximum nonusurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the Obligations under laws
applicable to the Administrative Agent, the Issuing Bank or such Lender which are currently in
effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum nonusurious interest rate
than applicable laws now allow.


 


12









 





“Holdings” has the meaning specified in the preamble hereto.



“Holdings Guarantee” means the Amended and Restated Holdings Guarantee to be executed
and delivered by Holdings, in substantially the form of Exhibit M.



“Holdings Pledge Agreement” means the Amended and Restated Holdings Pledge Agreement
to be executed and delivered by Holdings, in substantially the form of Exhibit N.



“Hydrocarbons” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons and all products,
by-products, and other substances derived, produced, refined, separated, settled and dehydrated
therefrom or the processing thereof, and all other minerals and substances produced in conjunction
with such substances, including kerosene, liquefied petroleum gas, refined lubricating oils, diesel
fuel, helium, sulfur, geothermal steam, water, carbon dioxide, and any and all minerals, ores, or
substances of value and the products therefrom.



“Hydrocarbon Interests” means all rights, titles, interests and estates now owned or
hereafter acquired in and to all Leases, fee mineral interests, term mineral interests, farm-outs,
overriding royalty and royalty interests, net profit interests, carried interests, oil payments,
production payments and similar mineral interests, and all unsevered and unextracted Hydrocarbons
in, under or attributable to any such oil and gas Properties and all other reserved or residual
interests of whatever nature.



“Increased Facility Activation Notice” means a notice in substantially the form of
Exhibit O.



“Increased Facility Closing Date” means any Business Day designated as such in an
Increased Facility Activation Notice.



“Indebtedness” means, with respect to any Person, without duplication:



(a) all indebtedness of such Person for borrowed money;



(b) all obligations of such Person for the deferred purchase price of property or services
(other than trade payables incurred in the ordinary course of such Person’s business that are not
past due by more than sixty (60) days after the date on which such trade payable was created);



(c) all obligations of such Person evidenced by notes, bonds, debentures or other similar
instruments;



(d) all indebtedness created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the rights and remedies of
the seller or lender under such agreement in the event of default are limited to repossession or
sale of such property);



(e) all Attributable Indebtedness in respect of Capital Lease Obligations and Synthetic Lease
Obligations of such Person and all Synthetic Debt of such Person;



(f) the maximum amount of all obligations of such Person, contingent or otherwise, with
respect to bankers’ acceptances, letters of credit, letters of guaranty, surety bonds, performance
bonds and similar obligations;



(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any
payment in respect of any Equity Interests in such Person or any other Person, valued, in the case
of the redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation
preference plus all accrued and unpaid dividends;



(h) all obligations with respect to payments received in consideration of Hydrocarbons yet to
be acquired or produced at the time of payment (including obligations under “take-or-pay” contracts
to deliver gas in return for payments already received and the undischarged balance of any
volumetric or other production payment created by such Person or for the creation of which such
Person directly or indirectly received payment);


 


13









 





(i) all obligations of such Person in respect of Hedge Agreements, valued at the Hedge
Termination Value thereof;



(j) all Guarantee Obligations of such Person in respect of obligations of the kind referred to
in clauses (a) through (i) above; and



(k) all obligations of the kind referred to in clauses (a) through (i) above secured by (or
for which the holder of such obligation has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including accounts and contract rights) owned by such Person,
whether or not such Person has assumed or become liable for the payment of such obligation.



The Indebtedness of any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person is liable therefor
as a result of such Person’s ownership interest in or other relationship with such entity, except
to the extent the terms of such Indebtedness expressly provide that such Person is not liable
therefor.



“Indemnified Taxes” means Taxes other than Excluded Taxes.



“Independent Engineer” means Wright & Associates or any other engineering firm
reasonably acceptable to the Administrative Agent.



“Independent Engineering Report” means a report, in form and substance reasonably
satisfactory to the Administrative Agent and each of the Lenders, prepared by an Independent
Engineer, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas
Properties owned by the Borrower and its Restricted Subsidiaries (or to be acquired by the Borrower
or any of its Restricted Subsidiaries, as applicable) which report shall (a) specify the location
and quantity of the Proved Properties, Farmout Properties, and Participation Properties
attributable to such Oil and Gas Properties and separately report on the Proved Developed Producing
Reserves, Proved Developed Nonproducing Reserves, Proved Undeveloped Reserves and probable reserves
attributable to such Oil and Gas Properties, (b) use and contain projections of future rates of
production of such Oil and Gas Properties, (c) contain estimates of the net operating revenues to
be derived from the production and sale of Hydrocarbons from such Proved Reserves based on pricing
and cost escalation assumptions, discount factors and other economic assumptions and parameters
that are established by or acceptable to the Administrative Agent and the Lenders, (d) identify and
take into account any “over-produced” or “under-produced” status under gas balancing agreements,
(e) take into account actual experience with leasehold operating expenses and other costs in
determining projected leasehold operating expenses and other costs, and (f) contain such other
information and data regarding such Oil and Gas Properties as is customarily obtained from and
provided in such reports or is otherwise reasonably requested by the Administrative Agent or any
Lender.



“Initial Borrowing Base” has the meaning specified in Section 2.02(a).



“Initial Conforming Borrowing Base” has the meaning specified in Section 2.02(e).



“Initial Engineering Report” has the meaning specified in Section 4.01(e).



“Initial Farmout / Participation Property Certificate” has the meaning specified in
Section 4.01(f).



“Insolvency” means, with respect to any Multiemployer Plan, the condition that such
Plan is insolvent within the meaning of Section 4245 of ERISA.



“Insolvent” means pertaining to a condition of Insolvency.



“Intellectual Property” means the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or
in equity for any infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.



“Intellectual Property Security Agreement” has the meaning specified in the Guarantee
and Collateral Agreement.


 


14









 





“Interest Payment Date” means (a) as to any ABR Loan, the last day of each March,
June, September and December to occur while such Loan is outstanding and the Termination Date, (b)
as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such
Interest Period and the Termination Date, (c) as to any Eurodollar Loan having an Interest Period
longer than three months, each day that is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period and the Termination
Date, and (d) as to any Loan (other than any Loan that is an ABR Loan), the date of any repayment
or prepayment made in respect thereof.



“Interest Period” means, as to any Eurodollar Loan, (a) initially, the period
commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice
of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b)
thereafter, each period commencing on the last day of the next preceding Interest Period applicable
to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior
to the last day of the then current Interest Period with respect thereto; provided that,
all of the foregoing provisions relating to Interest Periods are subject to the following:



(i) if any Interest Period would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;



(ii) the Borrower may not select an Interest Period that would extend beyond the Termination
Date;



(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month; and



(iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment
of any Eurodollar Loan during an Interest Period for such Loan.



“Internal Engineering Report” means a report, in form and substance reasonably
satisfactory to the Administrative Agent and each Lender, prepared by the Borrower, certified by a
Responsible Officer of the Borrower and addressed to the Administrative Agent and the Lenders, with
respect to the Oil and Gas Properties owned by the Borrower and any of its Restricted Subsidiaries
(or to be acquired by the Borrower and any of its Restricted Subsidiaries, as applicable), which
report shall (a) specify the location and quantity of the Proved Properties, Farmout Properties and
Participation Properties attributable to such Oil and Gas Properties and separately report on the
Proved Developed Producing Reserves, Proved Developed Nonproducing Reserves, Proved Undeveloped
Reserves and probable reserves attributable to such Oil and Gas Properties, (b) use and contain
projections of future rates of production of such Oil and Gas Properties, (c) contain estimates of
the net operating revenues to be derived from the production and sale of Hydrocarbons from such
Proved Reserves based on pricing and cost escalation assumptions, discount factors and other
economic assumptions and parameters that are established by or acceptable to the Administrative
Agent and the Lenders, (d) identify and take into account any “over-produced” or “under-produced”
status under gas balancing agreements, (e) take into account actual experience with leasehold
operating expenses and other costs in determining projected leasehold operating expenses and other
costs, and (f) contain such other information and data regarding such Oil and Gas Properties as is
customarily obtained from and provided in such reports or is otherwise reasonably requested by the
Administrative Agent or any Lender.



“Investment” means, with respect to any Person, any direct or indirect acquisition or
investment by such Person whether by means of (a) the purchase or other acquisition of any Equity
Interest of another Person, (b) the purchase or other acquisition (in one transaction or a series
of transactions) of assets of another Person that constitute a business unit or all or a
substantial part of the business of such Person, (c) any loan, advance, deposit, extension of
credit or capital contribution to, assumption of debt of, or purchase or other acquisition of any
other debt of or interest in, another Person, (d) any Guarantee Obligation incurred by that Person
in respect of Indebtedness of any other Person, and (e) any other investment by that Person in any
other Person. For purposes of covenant compliance, the amount of any Investment shall be the
amount actually invested, without adjustment for subsequent increases or decreases in the value of
such Investment.


 


15









 





“IP Security Agreement Supplement” has the meaning specified in the Guarantee and
Collateral Agreement.



“ISP98” means the “International Standby Practices 1998” published by the Institute of
International Banking Law & Practice, as the same may be amended from time to time.



“Issuing Bank” means KeyBank in its capacity as issuer of Letters of Credit hereunder.



“KeyBank” means KeyBank National Association.



“LC Commitment” means $5,000,000.



“LC Fee Payment Date” means the last day of each March, June, September and
December and the last day of the Commitment Period.



“LC Obligations” means, at any time, an amount equal to the sum of (a) the aggregate
then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate
amount of drawings under Letters of Credit that have not been reimbursed pursuant to Section 3.05.



“LC Participants” means the collective reference to all the Lenders other than the
Issuing Bank.



“LC Reimbursement Obligation” means the obligation of the Borrower to reimburse the
Issuing Bank pursuant to Section 3.05 for amounts drawn under Letters of Credit.



“Leases” means all oil and gas leases, oil, gas and mineral leases, oil, gas and
casinghead gas leases or any other instruments, agreements, assignments or conveyances under and
pursuant to any of the foregoing, under which the Borrower or any Restricted Subsidiary which is a
party thereto has or obtains the right to enter upon lands and explore for, drill, and develop such
lands for the production of Hydrocarbons.



“Lenders” has the meaning specified in the preamble hereto. Unless the context
otherwise requires, the term “Lender” includes the Issuing Bank.



“Letters of Credit” has the meaning specified in Section 3.01(a).



“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge or other security interest or any preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement, any capital lease having
substantially the same economic effect as any of the foregoing, and any easement, right of way or
other encumbrance on title to real property).



“Loan” has the meaning specified in Section 2.01.



“Loan Documents” means this Agreement, the Notes, the Applications, and the Security
Documents.



“Loan Parties” means each Group Member that is or hereafter becomes a party to a Loan
Document.



“Material Adverse Effect” means a material adverse effect on (a) the business,
property, operations, condition (financial or otherwise) or prospects of the Borrower and its
Restricted Subsidiaries taken as a whole, (b) the validity or enforceability of this Agreement or
any of the other Loan Documents or the rights or remedies of the Administrative Agent or the or
Lenders under any Loan Document, (c) the validity, perfection or priority of any Lien granted
pursuant to the Security Documents, or (d) the ability of any Loan Party to perform its obligations
under any Loan Document to which it is or is to be a party.



“Material Contracts” means the collective reference to each Farmout Agreement, each
Participation Agreement, each Lease, and each other agreement or contract of the Borrower or any
Restricted Subsidiary which (a) involves consideration to the Borrower or any Restricted Subsidiary
of $500,000 or more in any year, (b) involves consideration by the Borrower or any Restricted
Subsidiary of $500,000 or more in any year, (c) imposes financial obligations on the Borrower or
any Restricted Subsidiary of $500,000 or more in any year, (d) is a Hedge Agreement or (e) is
otherwise material (or together with related agreements and contracts, is material) to the
business, operations, financial condition, performance or properties of the Borrower and its
Restricted Subsidiaries taken as a whole.


 


16









 





“Moody’s” means Moody’s Investors Service, Inc., and any successor thereto that is a
nationally recognized rating agency.



“Mortgaged Properties” means all Oil and Gas Properties of the Borrower and its
Restricted Subsidiaries as to which the Administrative Agent, for the benefit of the Secured
Parties, is or shall be granted a Lien pursuant to the Mortgages (and, with respect to any Farmout
Properties and any Participation Properties, the Guarantee and Collateral Agreement).



“Mortgages” means collective reference to all Oil and Gas Mortgages and all Pipeline
Mortgages.



“Multiemployer Plan” means a Plan that is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.



“New Lender” has the meaning specified in Section 2.01(d).



“New Lender Supplement” has the meaning specified in Section 2.01(d).



“New Oil and Gas Mortgages” means the collective reference to all Oil and Gas
Mortgages entered into by the Borrower or any Restricted Subsidiary on the Closing Date (including,
without limitation, any Oil and Gas Mortgage which amends, or amends and restates, any Existing Oil
and Gas Mortgage).



“NGAS Convertible Notes” means the Notes issued by Holdings pursuant to the NGAS
Securities Purchase Agreement, issued prior to and as in effect on the Original Closing Date.



“NGAS Gathering” means NGAS Gathering, LLC, a Kentucky limited liability company.



“NGAS Gathering Pipeline Properties” means the collective reference to the Pipeline
Properties purchased by NGAS Gathering from Duke Energy Gas Services, LLC pursuant to the NGAS
Gathering Pipeline Property Acquisition Agreements and that are owned by NGAS Gathering or the
Borrower on the Closing Date.



“NGAS Gathering Pipeline Property Acquisition Agreements” means that certain Asset
Purchase and Sale Agreement dated as of January 17, 2006, between NGAS Gathering and Duke Energy
Gas Services, LLC, a Kentucky limited liability company, and all existing exhibits, schedules, and
annexes thereto, all other agreements, instruments and documents relating thereto, and any and all
amendments to any and all of the foregoing.



“NGAS Registration Rights Agreement” means the Registration Rights Agreement dated as
of December 13, 2005, among Holdings and the Buyers specified therein, as in effect on the Closing
Date.



“NGAS Securities Purchase Agreement” means the Securities Purchase Agreement dated as
of December 13, 2005, among Holdings and the Investors specified therein, as in effect on the
Closing Date.



“NGAS Securities Purchase Documents” means the NGAS Securities Purchase Agreement, the
NGAS Convertible Notes, the NGAS Registration Rights Agreement, and all other agreements,
instruments and documents relating to any of the foregoing, each as in effect on the Closing Date.



“Non-Appalachian State” means any State within the United States (other than Kentucky,
Tennessee, Virginia and West Virginia).



“Note” has the meaning specified in Section 2.19(d).



“Notice of Borrowing” means a Notice of Borrowing, substantially in the form of
Exhibit K.



“Notice of Conversion/Continuation” means a Notice of Conversion/Continuation,
substantially in the form of Exhibit G.


 


17









 





“Obligations” means the unpaid principal of and interest on (including interest
accruing after the maturity of the Loans and LC Reimbursement Obligations and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Loan Party, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) the Loans and LC Reimbursement
Obligations and all other obligations, indebtedness and liabilities of the Loan Parties to the
Secured Parties and each of them, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out of, or in connection
with, this Agreement, any other Loan Document, the Letters of Credit, any Hedge Bank Obligations,
or any other document, instrument or agreement made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement obligations, guarantee
obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of
counsel to the Administrative Agent or to any Secured Party that are required to be paid by the
Loan Parties pursuant to any Loan Document) or otherwise.



“Oil and Gas Mortgages” means the collective reference to all Existing Oil and Gas
Mortgages, all New Oil and Gas Mortgages, all Additional Oil and Gas Mortgages, all Supplemental
Oil and Gas Mortgages and all other mortgages, deeds of trust, and other documents made by the
Borrower or any Restricted Subsidiary in favor of, or for the benefit of, the Administrative Agent,
for the benefit of the Secured Parties, substantially in the form of Exhibit C-1 (with such
changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage,
deed of trust, assignment of production or other document is to be recorded) or in such other form
as may be reasonably acceptable to the Administrative Agent, which creates a Lien on any Proved
Properties, Farmout Properties, Participation Properties or other Oil and Gas Properties (other
than Pipeline Properties) from time to time.



“Oil and Gas Properties” means (a) all Hydrocarbon Interests (including all Proved
Properties); (b) all Properties now or hereafter pooled or unitized with any Hydrocarbon Interests;
(c) all Farmout Properties and all Participation Properties; (d) all operating agreements,
assignments and other contracts, including production sharing contracts and agreements, which
relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all existing and
future unitization, pooling agreements and declarations of pooled units and the units created
thereby (including, without limitation, all units created under orders, regulations and rules of
any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (f)
all Pipeline Properties and all other pipelines, gathering lines, compression facilities, tanks and
processing plants; (g) all oil wells, gas wells, water well, injection wells, platforms, spars or
other offshore facilities, casings, rods, tubing, pumping units and engines, christmas trees,
derricks, separators, gun barrels, flow lines, gas systems (for gathering, treating and
compression), and water systems (for treating, disposal and injection); (h) all interests held in
royalty trusts whether presently existing or hereafter created; (i) all Hydrocarbons in and under
and which may be produced, saved, processed or attributable to the Hydrocarbon Interests, including
all lands covered thereby, including all Hydrocarbons in pipelines, gathering lines, tanks and
processing plants and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; (j) all tenements, hereditaments, appurtenances
and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon
Interests; (k) all Properties, rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned or hereafter acquired and
situated upon, used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding any drilling rigs,
automotive equipment, rental equipment or other Property that may be located on such premises for
the purpose of drilling a well or for other temporary uses) and including all oil wells, gas wells,
injection wells and other wells, buildings, structures, fuel separators, liquid extraction plants,
plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing together with all additions,
substitutions, replacements, accessions and attachments to any of the foregoing; and (l) all oil,
gas and mineral leasehold, fee and term interests, overriding royalty interests, mineral interests,
royalty interests, net profits interests, net revenue interests, oil payments, production payments,
carried interests, leases, subleases, farm-outs and all other interests in Hydrocarbons; in each
case for any Property described in clauses (a) through (k) above, whether now owned or hereafter
acquired directly or indirectly.



“Oil and Gas Property Certificate” means, at any time, a certificate, substantially in
the form of Exhibit R hereto (together with each exhibit thereto), prepared by the
Borrower, certified by a Responsible Officer of the Borrower and addressed to the Administrative
Agent and the Lenders, with respect to the Oil and Gas Properties of the Borrower or any Restricted
Subsidiary.


 


18









 





“Oil and Gas Property Description Information” means all information necessary or
required for the purpose of adequately describing the Oil and Gas Properties of the Borrower and
its Restricted Subsidiaries in order for the Administrative Agent and the Lenders to (a) identify
and determine the value of such Oil and Gas Properties and (b) obtain and maintain an Acceptable
Lien (or, to the extent permitted hereunder, other Lien) on such Oil and Gas Properties, in each
case as determined by the Administrative Agent and the Lenders in its and their sole discretion.



“Oil and Gas Property Title Information” means all land records, title opinions, title
searches, title reports, Lien searches, abstracts and other information necessary or desirable, in
the determination of the Administrative Agent and the Lenders in its and their sole discretion, to
establish, verify, and evaluate the status of rights, titles and interests of the Borrower and its
Restricted Subsidiaries in and to their respective Oil and Gas Properties.



“Open-Access Pipeline Properties” means all NGAS Gathering Pipeline Properties and any
similar Pipeline Properties owned by the Borrower or any Restricted Subsidiary which are used to
transport volumes of oil and gas which transportation generates revenues to the Borrower or such
Restricted Subsidiary, as determined by the Administrative Agent and the Lenders from time to time
in its and their sole discretion.



“Organizational Documents” means, (a) with respect to any corporation, the certificate
or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents
with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the
certificate or articles of formation or organization and operating agreement; and (c) with respect
to any partnership, joint venture, trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or organization with
the applicable Governmental Authority in the jurisdiction of its formation or organization and, if
applicable, any certificate or articles of formation or organization of such entity.



“Other Taxes” means all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment made hereunder or
under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with
respect to, this Agreement or any other Loan Document.



“Outstanding Credit” means, with respect to any Lender at any time, an amount equal to
the sum of (a) aggregate principal amount of all Loans held by such Lender then outstanding and (b)
such Lender’s Borrowing Base Commitment Percentage of all LC Obligations then outstanding.



“Participant” has the meaning specified in Section 10.06(d).



“Participation Agreement” means the Existing Participation Agreements and any other
participation agreement or other similar agreement (other than Farmout Agreements) (together with
all exhibits and schedules thereto) by or among any Approved Counterparty and the Borrower or any
Restricted Subsidiary (a) covering or relating to Proved Reserves and related Property rights and
interests owned by such Approved Counterparty and (b) pursuant to which the Borrower or any
Restricted Subsidiary has or obtains by assignment rights, titles and interests in and to such
Proved Reserves and related Property rights and interests which rights, titles and interests are,
in the determination of the Administrative Agent and the Lenders, interests in personal Property,
as opposed to interests in real Property, under applicable state law.



“Participation Agreement Consent” means any agreement, in form and substance
satisfactory to the Administrative Agent and the Lenders, among one or more Approved
Counterparties, the Borrower or any Restricted Subsidiary, and the Administrative Agent, for the
benefit of the Secured Parties, relating to any Participation Agreement and any Participation
Agreement Assignments made or to be made under or pursuant to such Participation Agreement and
consenting to the creation, maintenance, perfection and enforcement of the Liens and other rights
and remedies of the Secured Parties in and to any such Loan Party’s rights, titles and interests in
and to the Participation Properties described or referenced therein.



“Participation Properties” means all rights, titles and interests of the Borrower and
any Restricted Subsidiary in and to any Earned Participation Interests that have been assigned and
transferred to the Borrower or such Restricted Subsidiary pursuant to any Participation Agreement
and any Participation Property Assignment.


 


19









 





“Participation Property Assignment” means, with respect to any Participation
Agreement, an assignment, substantially in the form attached as an exhibit to such Participation
Agreement and otherwise in form and substance satisfactory to the Administrative Agent, and
prepared, executed and delivered by one or more Approved Counterparties, as assignors, and the
Borrower or any Restricted Subsidiary, as assignee, and providing for and evidencing the assignment
of one or more Participation Properties described therein to the Borrower or such Restricted
Subsidiary, pursuant to and in accordance with such Approved Participation Agreement.



“PBGC” means the Pension Benefit Guaranty Corporation established pursuant to Subtitle
A of Title IV of ERISA (or any successor).



“Permitted Liens” has the meaning specified in Section 7.03.



“Person” means a natural person, partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.



“Pipeline Mortgages” means the collective reference to all mortgages, deeds of trust,
Supplemental Pipeline Mortgages, assignments and other documents made by the Borrower or any
Restricted Subsidiary in favor of, or for the benefit of, the Administrative Agent, for the benefit
of the Secured Parties, substantially in the form of Exhibit C-2 (with such changes thereto
as shall be advisable under the laws of the jurisdiction in which such mortgage, deed of trust or
other document is to be recorded) or in such other form as may be reasonably acceptable to the
Administrative Agent, which creates a Lien on any Pipeline Properties.



“Pipeline Properties” means all pipelines, gathering lines, compression facilities,
tanks and processing plants now owned or hereafter acquired directly or indirectly by the Borrower
and any Restricted Subsidiary (including, without limitation, all Open-Access Pipeline Properties).



“Plan” means at a particular time, any employee benefit plan that is covered by ERISA
and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as
defined in Section 3(5) of ERISA.



“Pledged Equity Interests” has the meaning specified in the Guarantee and Collateral
Agreement.



“Pledged Notes” has the meaning specified in the Guarantee and Collateral Agreement.



“Post-Closing Date” has the meaning specified in Section 6.19(c).



“Preferred Interests” means, with respect to any Person, Equity Interests issued by
such Person that are entitled to a preference or priority over any other Equity Interests issued by
such Person upon any distribution of such Person’s property and assets, whether by dividend or upon
liquidation.



“Property” of any Person means any property or assets (whether real, personal, or
mixed, tangible or intangible) of such Person.



“Proved Properties” means all Proved Reserves owned by the Borrower and its Restricted
Subsidiaries or in which the Borrower or any Restricted Subsidiary has any right, title or interest
pursuant to any Leases or any other agreements and which rights, title and interests constitute, in
the determination of the Administrative Agent and the Lenders, rights, titles and interests in and
to real Property under applicable state law.



“Proved Reserves” means “Proved Reserves” as defined in the Definitions for Oil and
Gas Reserves (in this paragraph, the “Definitions”) promulgated by the Society of Petroleum
Engineers (or any generally recognized successor) as in effect at the time in question. As used in
this Agreement or any other Loan Document, “Proved Developed Producing Reserves” means Proved
Reserves which are categorized as both “Developed” and “Producing” in the Definitions, “Proved
Developed Nonproducing Reserves” means Proved Reserves which are categorized as both “Developed”
and “Nonproducing” in the Definitions, and “Proved Undeveloped Reserves” means Proved Reserves
which are categorized as “Undeveloped” in the Definitions, provided that the following criteria
shall also apply to Proved Developed Producing Reserves: (a) no reserves shall be classified as
Proved Developed Producing Reserves until a minimum of forty-five (45) days of production have
occurred in at least one consecutive period of sixty (60) days following any operation, workover or
capital expenditure, and (b) during such
forty-five (45) days of production, the well relating to such reserves must be tested a
minimum of three (3) times for at least twenty-four (24) hours of continuous duration.


 


20









 





“Reference Lender” means KeyBank.



“Register” has the meaning specified in Section 10.06(c).



“Regulation U” has the meaning specified in Regulation U of the Board as in effect
from time to time.



“Related Parties” means, with respect to any Person, such Person’s Affiliates and the
partners, directors, officers, employees, agents and advisors of such Person and of such Person’s
Affiliates.



“Reorganization” means, with respect to any Multiemployer Plan, the condition that
such plan is in reorganization within the meaning of Section 4241 of ERISA.



“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA,
other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.



“Required Lenders” means, at any time, (a) if more than two (2) Lenders are party to
this Agreement, the holders of at least 66-2/3% of the Total Commitments then in effect or, if the
Commitments have been terminated, the Aggregate Outstanding Credit then outstanding or (b) if two
(2) or fewer Lenders are party to this Agreement, all of the Lenders; provided, however, that the
Commitments of, and aggregate outstanding Loans and LC Obligations held or deemed held by, a
Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.



“Requirement of Law” means, as to any Person, the Organizational Documents of such
Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.



“Responsible Officer” means the chief executive officer, president or chief financial
officer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer
of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate,
partnership and/or other action on the part of such Loan Party and such Responsible Officer shall
be conclusively presumed to have acted on behalf of such Loan Party.



“Restricted Account” means any deposit account of the Borrower that is a segregated
account established with Central Bank & Trust Co. (a) for the benefit of investors in its Drilling
Program Partnerships, to hold (i) subscriptions from such investors in escrow pending the closing
of the offering and sale of limited and general partnership interests in the Drilling Program
Partnerships (which funds are released to the associated Drilling Program as capital contributions
at one or incremental closings) or (ii) investor funds segregated solely for the purpose of paying
drilling costs and expenses pursuant to Drilling Program Agreements; (b) for the benefit of
Drilling Programs, to hold production proceeds segregated solely for the purpose and in the amount
necessary to pay the Drilling Program’s proportionate share of the costs for plugging, abandoning
and reclaiming wells pursuant to the terms and conditions of the Drilling Program Agreements; and
(c) for the benefit of investors entitled to periodic cash distributions from Drilling Program
Partnerships and holders of royalty and overriding royalty interests, to hold production proceeds
segregated solely for the purpose and in the amount necessary to make distributions to such
investors in Drilling Program Partnerships pursuant to the terms and conditions of the Drilling
Program Agreements and to such holders of royalty interests under the instruments governing the
Hydrocarbon Interests of the Borrower.



“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other property) with respect to any capital stock or other Equity Interest of any
Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase, redemption, retirement,
defeasance, acquisition, cancellation or termination of any such capital stock or other Equity
Interest, or on account of any return of capital to any Person’s stockholders, partners or members
(or the equivalent of any thereof), or any option, warrant or other right to acquire any such
dividend or other distribution or payment.


 


21









 





“Restricted Subsidiary” means NGAS Gathering and each present and future direct and
indirect Subsidiary of the Borrower that is not an Unrestricted Subsidiary.



“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies,
Inc., and any successor that is a nationally recognized statistical rating agency.



“SEC” means the Securities and Exchange Commission, any successor thereto and any
analogous Governmental Authority.



“Secured Parties” means the collective reference to the Administrative Agent, the
Issuing Bank, the Lenders, the Hedge Banks, and each co-agent or sub-agent appointed by the
Administrative Agent from time to time pursuant to any Security Document. Notwithstanding anything
to the contrary contained herein or in any other Loan Document, the Hedge Banks, in their capacity
as such, shall have no rights in connection with the management or release of any Collateral or the
obligations of any Loan Party under any Loan Document.



“Security Documents” means the collective reference to the Guarantee and Collateral
Agreement, the Holdings Guarantee, the Holdings Pledge Agreement, the Intellectual Property
Security Agreement, the IP Security Agreement Supplement, the Mortgages, the Transfer Letters and
all other security documents hereafter delivered to the Administrative Agent that create or purport
to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.



“SFAS 133” means Statement of Financial Accounting Standard 133, Accounting for
Derivative Instruments and Hedging Activities, adopted by FASB, as amended, restated,
supplemented or otherwise modified from time to time.



“Single Employer Plan” means any Plan that is subject to Title IV of ERISA, but that
is not a Multiemployer Plan.



“Solvency Event” means, with respect to any Person that is a party to any Farmout
Agreement or Participation Agreement (other than the Borrower or any Restricted Subsidiary), the
occurrence of any event or circumstance involving, with respect to or attributable to such Person
which is similar to any event or circumstance described in Section 8.01(f) of this Agreement.



“Solvent” means, with respect to any Person as of any date of determination, that on
such date (a) the amount of the “present fair saleable value” of the assets of such Person will,
as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise,” as
of such date, as such quoted terms are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of
the assets of such Person will, as of such date, be greater than the amount that will be required
to pay the liability of such Person on its debts as such debts become absolute and matured, (c)
such Person will not have, as of such date, an unreasonably small amount of capital with which to
conduct its business, and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) “debt” means liability on a “claim,” and (ii) “claim” means any
(x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or unsecured.



“Subsidiary” means as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the board of directors or other managers
of such corporation, partnership or other entity are at the time owned, or the management of which
is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by
such Person, provided, that the term “Subsidiary” shall not include any Drilling Program
Partnership or Drilling Program. Unless otherwise qualified, all references to a “Subsidiary” or
to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.



“Subsidiary Guarantor” means each Restricted Subsidiary.


 


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“Supplemental Oil and Gas Mortgage” means a mortgage or a deed of trust, made by the
Borrower or any Restricted Subsidiary in favor of, or for the benefit of, the Administrative Agent,
for the benefit of the Secured Parties, substantially in the form of Exhibit S (with such
changes thereto as shall be advisable under the laws of the jurisdiction in which such mortgage,
deed of trust or other document is to be recorded) or in such other form as may be reasonably
acceptable to the Administrative Agent, which creates a Lien on any Oil and Gas Properties located
in any county in which the Borrower or any Restricted Subsidiary owns Oil and Gas Properties that
are already subject to a Mortgage.



“Supplemental Pipeline Mortgage” means a mortgage or a deed of trust, made by the
Borrower or any Restricted Subsidiary in favor of, or for the benefit of, the Administrative Agent,
for the benefit of the Secured Parties, substantially in the form of Exhibit T (with such
changes thereto as shall be advisable under the laws of the jurisdiction in which such mortgage,
deed of trust or other document is to be recorded) or in such other form as may be reasonably
acceptable to the Administrative Agent, which creates a Lien on any Pipeline Properties located in
any county in which the Borrower or any Restricted Subsidiary owns Pipeline Properties that are
already subject to a Pipeline Mortgage.



“Synthetic Debt” means, with respect to any Person as of any date of determination
thereof, all obligations and liabilities of such Person in respect of transactions entered into by
such Person that are intended to function primarily as or are the functional equivalent of or takes
the place of a borrowing of funds (including any repurchase obligations or liabilities and any
minority interest transactions that function primarily as a borrowing) but are not otherwise
included in the definition of “Indebtedness” or as a liability on the consolidated balance
sheet of such Person and its Subsidiaries in accordance with GAAP, except for obligations arising
under Hedge Agreements expressly permitted under this Agreement.



“Synthetic Lease” means, at any time, any lease (including leases that may be
terminated by the lessee at any time) of any Property (a) that is accounted for as an operating
lease under GAAP and (b) in respect of which the lessee retains or obtains ownership of the
Property so leased for income tax purposes, other than any such lease under which such Person is
the lessor.



“Synthetic Lease Obligations” means, with respect to any Synthetic Lease, at any time,
an amount of equal to the higher of (a) the aggregate termination value or purchase price or
similar payments in the nature of principal payable thereunder and (b) the then aggregate
outstanding principal amount of the notes or other instruments issued by, and the amount of the
equity investment, if any, in, the lessor under such Synthetic Lease.



“Taxes” means all present or future taxes (including ad valorem, production and
severance taxes), levies, imposts, duties, deductions, withholdings, assessments, fees or other
charges imposed by any Governmental Authority, including any interest, additions to tax or
penalties applicable thereto.



“Termination Date” means September 8, 2011.



“Total Borrowing Base Availability” means, at any time, an amount equal to (a) the
aggregate Borrowing Base Commitments then in effect, minus (b) the Aggregate Outstanding
Credit.



“Total Commitments” means, at any time, the aggregate amount of the Commitments in
effect at such time.



“Transfer Letter” means each letter in lieu of any transfer order in substantially the
form of Exhibit J, executed by the Borrower and each Restricted Subsidiary executing a
Mortgage, as applicable.



“Type” means, as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.



“UCC” means the Uniform Commercial Code as in effect in the State of Ohio;
provided that if perfection or the effect of perfection or non-perfection is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State of Ohio,
“UCC” means the Uniform Commercial Code as in effect from time to time in such other
jurisdiction for purposes of the provisions hereof relating to such perfection, effect of
perfection or non-perfection or priority.



“Uniform Customs” means the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from
time to time.


 


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“United States” and “U.S.” mean the United States of America.



“Unrestricted Subsidiary” means each of NGAS Securities, Inc., a Kentucky corporation;
Sentra Corporation, a Kentucky corporation; and Daugherty Petroleum ND Ventures, LLC, a Kentucky
limited liability company. Any designation by the Borrower of any other Subsidiary as an
Unrestricted Subsidiary shall require the prior written approval of the Administrative Agent and
the Lenders.



“USA PATRIOT Act” means United States Public Law 107-56, Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT)
Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.



Section 1.02. Other Definitional Provisions. 


(a) Unless otherwise specified therein,
all terms defined in this Agreement shall have the defined meanings when used in the other Loan
Documents or any certificate or other document made or delivered pursuant hereto or thereto.



(b) As used herein and in the other Loan Documents, and any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms relating to Holdings, the Borrower and
its Subsidiaries not defined in Section 1.01 and accounting terms partly defined in Section 1.01,
to the extent not defined, shall have the respective meanings given to them under GAAP.



(c) The definitions of terms herein shall apply equally to the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be
deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to
have the same meaning and effect as the word “shall.” Unless the context requires otherwise (i)
any definition of or reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from time to time
amended, amended and restated supplemented or otherwise modified (subject to any restrictions on
such amendments, amendments and restatements, supplements or modifications set forth herein), (ii)
any reference herein to any Person shall be construed to include such Person’s successors and
assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular provision hereof,
(iv) the word “incur” shall be construed to mean incur, create, issue, assume, become liable in
respect of or suffer to exist (and the words “incurred” and “incurrence” shall have correlative
meanings), (v) all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (vi)
any reference to any law or regulation herein shall, unless otherwise specified, refer to such law
or regulation as amended, modified or supplemented from time to time and (vii) the words “asset”
and “property” shall be construed to have the same meaning and effect and to refer to any interest
of any kind of asset or property, whether real, personal, or mixed, or tangible or intangible,
including cash, Equity Interests, securities, accounts and contract rights.



(d) No inference in favor of, or against, any party to this Agreement shall be drawn from the
fact that such party has drafted any portion of this Agreement.



(e) All obligations of the Borrower or Holdings under this Agreement and the other Loan
Documents shall be performed and satisfied by or on behalf of the Borrower or Holdings, as
applicable, at its sole cost and expense.



ARTICLE II




AMOUNT AND TERMS OF COMMITMENTS




Section 2.01. Commitments.



(a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (“Loans”) to the Borrower from time to time during the Commitment Period in an
aggregate principal amount at any one time outstanding which, when added to such Lender’s Borrowing
Base Commitment Percentage of the LC Obligations then outstanding, does not exceed the amount of
such Lender’s Commitment or such Lender’s Borrowing Base Commitment; provided,
however, that after giving effect to any borrowing of a Loan, the Aggregate Outstanding
Credit shall not exceed an amount equal to the lesser of (i) the Borrowing Base, or (ii) the Total
Commitments then in effect. During the Commitment Period, the Borrower may use the Commitments by
borrowing, prepaying the Loans in whole or in part, and reborrowing, all in accordance with
the terms and conditions hereof. The Loans may from time to time be Eurodollar Loans or ABR Loans,
as determined by the Borrower and notified to the Administrative Agent in accordance with Sections
2.03 and 2.08.


(b) The Borrower unconditionally promises to repay all outstanding Loans on the Termination
Date (or such earlier date on which the Loans become due and payable pursuant to Section 8.01).



 


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(c) The Borrower and any one or more Lenders (including New Lenders) may agree that each such
Lender shall increase of the amount of its existing Commitment (or shall obtain a new Commitment,
as applicable), in each case by executing and delivering to the Administrative Agent an Increased
Facility Activation Notice specifying (i) the amount of such increase and (ii) the Increased
Facility Closing Date, which shall be at least forty-five (45) days after receipt by the
Administrative Agent of such Increased Facility Activation Notice. Notwithstanding the foregoing,
without the consent of the Required Lenders, (x) the aggregate amount of incremental Commitments
obtained pursuant to this paragraph shall not exceed $50,000,000 and (y) no more than three (3)
Increased Facility Closing Dates may be selected by the Borrower during the term of this Agreement.
No Lender shall have any obligation to increase its Commitment described in this paragraph unless
it agrees to do so in its sole discretion. For the avoidance of doubt, no Lender’s consent shall
be required to give effect to any New Lender obtaining a Commitment or any existing Lender
increasing its Commitment pursuant to this Section 2.01.



(d) Any additional bank, financial institution or other entity which, with the consent of the
Borrower and the Administrative Agent (which consent shall not be unreasonably withheld), elects to
become a “Lender” under this Agreement in connection with any transaction described in
Section 2.01(c) shall execute a New Lender Supplement (each, a “New Lender Supplement”),
substantially in the form of Exhibit P, whereupon such bank, financial institution or other
entity (a “New Lender”) shall become a Lender for all purposes and to the same extent as if
originally a party hereto and shall be bound by and entitled to the benefits of this Agreement.



(e) For the purpose of providing that the respective amounts of Loans (and Eurodollar Tranches
in respect thereof) held by the Lenders are held by them on a pro rata basis
according to their respective Borrowing Base Commitment Percentages, on each Increased Facility
Closing Date and the date of each adjustment of the Borrowing Base Commitments and Borrowing Base
Loan Commitment Percentages pursuant to Section 2.02(d)(vi), (i) all outstanding Loans shall be
converted into a single Revolving Loan that is a Eurodollar Loan (with an Interest Period to be
selected by the Borrower), and upon such conversion the Borrower shall pay any amounts owing
pursuant to Section 2.17, if any, (ii) any new borrowings of Loans on such date shall also be part
of such single Loan and (iii) all Lenders (including the New Lenders) shall hold a portion of such
single Loan equal to its Borrowing Base Commitment Percentage thereof, and the Lenders and the
Borrower shall make such adjustments in the principal amounts of the Loans held by the Lenders on
such date as may be requested by the Administrative Agent so as to achieve the foregoing.



Section 2.02. Borrowing Base.



(a) Borrowing Base. The Borrowing Base in effect as of the Closing Date is
$75,000,000 (the “Initial Borrowing Base”). The Initial Borrowing Base shall remain in
effect until the next Borrowing Base redetermination made pursuant to this Section 2.02. The
Borrowing Base shall be determined in accordance with the standards set forth in Section 2.02(d)
and is subject to periodic redetermination pursuant to Sections 2.02(b) and 2.02(c).



(b) Calculation of Borrowing Base.



(i) The Borrower shall deliver to the Administrative Agent and each of the Lenders on or
before April 1 of each calendar year, beginning April 1, 2008, (A) an Independent Engineering
Report dated effective as of the immediately preceding January 1, (B) an Oil and Gas Property
Certificate and a Farmout/Participation Property Certificate, each dated effective as of such
April 1 date, (C) its requested amount for the redetermined Borrowing Base, and (D) such other
information and data as may be reasonably requested by the Administrative Agent or any Lender with
respect to the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries, including
all such Oil and Gas Properties included or to be included in the Borrowing Base. Within twenty
(20) days after the Administrative Agent and the Lenders’ receipt of such Independent Engineering
Report, Oil and Gas Property Certificate and Farmout/Participation Property Certificate and other
information, the Administrative Agent shall deliver to each Lender the Administrative Agent’s
recommendation for the redetermined Borrowing Base (which recommendation may, for the avoidance of
doubt, be to leave the Borrowing Base unchanged or to decrease the Borrowing Base as further
provided in this Section 2.02). Within ten (10) days after the Lenders’ receipt of the
Administrative Agent’s recommendation, the Administrative Agent and the Lenders in the
case of an increase in the Borrowing Base, and the Administrative Agent and the Required
Lenders in the case of a decrease in the Borrowing Base or a reaffirmation of the then existing
Borrowing Base, shall redetermine the Borrowing Base in accordance with Section 2.02(d), and the
Administrative Agent shall promptly notify the Borrower in writing of the amount of the Borrowing
Base as so redetermined.


 


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(ii) The Borrower shall deliver to the Administrative Agent and each Lender on or before
October 1 of each calendar year, beginning October 1, 2008, (A) an Internal Engineering Report
dated effective as of the immediately preceding July 1, (B) an Oil and Gas Property Certificate and
a Farmout/Participation Property Certificate, each dated effective as of such October 1 date, (C)
its requested amount for the redetermined Borrowing Base, and (D) such other information and data
as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil
and Gas Properties of the Borrower and its Restricted Subsidiaries, including all such Oil and Gas
Properties included or to be included in the Borrowing Base. Within twenty (20) days after the
Administrative Agent and the Lenders’ receipt of such Internal Engineering Report, Oil and Gas
Property Certificate and Farmout/Participation Property Certificate and other information, the
Administrative Agent shall deliver to each Lender the Administrative Agent’s recommendation for the
redetermined Borrowing Base (which recommendation may, for the avoidance of doubt, be to leave the
Borrowing Base unchanged or to decrease the Borrowing Base as further provided in this
Section 2.02). Within ten (10) days after the Lenders’ receipt of the Administrative Agent’s
recommendation, the Administrative Agent and the Lenders in the case of an increase in the
Borrowing Base, and the Administrative Agent and the Required Lenders in the case of a decrease in
the Borrowing Base or a reaffirmation of the then existing Borrowing Base, shall redetermine the
Borrowing Base in accordance with Section 2.02(d), and the Administrative Agent shall promptly
notify the Borrower in writing of the amount of the Borrowing Base as so redetermined.



(iii) In the event that the Borrower does not furnish to the Administrative Agent and the
Lenders the Independent Engineering Report, Internal Engineering Report, Oil and Gas Property
Certificate, Farmout/Participation Property Certificate, or other information and data specified in
clauses (i) and (ii) above by the date specified therein, the Administrative Agent and the Lenders
may nonetheless redetermine the Borrowing Base and redesignate the Borrowing Base from time to time
thereafter in their sole discretion until the Administrative Agent and the Lenders receive the
relevant Independent Engineering Report, Internal Engineering Report, Farmout/Participation
Property Certificate, or other information and data, as applicable, whereupon the Administrative
Agent and the Lenders shall redetermine the Borrowing Base as otherwise specified in this
Section 2.02(b) and Section 2.02(d).



(iv) Each delivery of an Engineering Report and related Oil and Gas Property Certificate by
the Borrower to the Administrative Agent and the Lenders shall constitute a representation and
warranty by the Borrower to the Administrative Agent and the Lenders that (A) the Borrower and its
Restricted Subsidiaries, as applicable, own the Oil and Gas Properties described therein, (B) the
Borrowing Base Properties described therein are subject to an Acceptable Lien, except to the extent
otherwise expressly permitted in writing by the Lenders, and (C) on and as of the date of such
Engineering Report, each of the Oil and Gas Properties owned by the Borrower or any of its
Restricted Subsidiaries and described therein was developed for oil and gas, and the wells
pertaining to such Oil and Gas Properties that are described therein as producing wells were each
producing oil and gas in paying quantities, except for any such wells that were utilized as water
or gas injection wells or as water disposal wells.



(v) Each delivery of a Farmout/Participation Property Certificate by the Borrower to the
Administrative Agent and the Lenders shall constitute a representation and warranty by the Borrower
to the Administrative Agent and the Lenders that (A) the Borrower and its Restricted Subsidiaries,
as applicable, own the Farmout Properties and the Participation Properties described therein
(subject in each case to the reserved interests and burdens expressly set forth in the applicable
Farmout Agreement or the applicable Participation Agreement, as the case may be), (B) the Farmout
Properties described therein that are (or that are proposed to be) Borrowing Base Properties are
Approved Farmout Properties, except to the extent otherwise expressly permitted in writing by the
Lenders, (C) the Participation Properties described therein that are (or that are proposed to be)
Borrowing Base Properties are Approved Participation Properties, except to the extent permitted in
writing by the Lenders and (D) on and as of the date of such Farmout/Participation Property
Certificate, each of the Farmout Properties and the Participation Properties owned by the Borrower
or any of its Restricted Subsidiaries and described therein relates to Proved Reserves.


 


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(c) Interim Redeterminations of Borrowing Base. In addition to the Borrowing Base
redeterminations provided for in Section 2.02(b), the Borrower may request one (1) additional
redetermination of the Borrowing Base during any six-month period between scheduled Borrowing Base
redeterminations, and the Administrative Agent and the Required Lenders may, in their sole
discretion and based on such information as the Administrative Agent
and such Lenders deem relevant (but in accordance with Section 2.02(d)), make requests for
additional redeterminations of the Borrowing Base at any time between scheduled Borrowing Base
redeterminations. The party requesting the redetermination shall give the other parties to this
Agreement at least ten (10) days’ prior written notice that a redetermination of the Borrowing Base
pursuant to this paragraph (c) is to be performed. In connection with any redetermination of the
Borrowing Base under this Section 2.02(c), the Borrower shall provide the Administrative Agent and
the Lenders with such information regarding the Borrower and its Restricted Subsidiaries’ business
(including, without limitation, any Oil and Gas Properties of the Borrower or any of its Restricted
Subsidiaries, any Proved Reserves attributable thereto, and production relating thereto) as the
Administrative Agent or any Lender may request, and further including any updated Engineering
Report, any supplemental Oil and Gas Property Certificate and any supplemental
Farmout/Participation Property Certificate. The Administrative Agent shall promptly notify the
Borrower in writing of each redetermination of the Borrowing Base pursuant to this Section 2.02(c)
and the amount of the Borrowing Base as so redetermined.



(d) Standards for Redetermination of Borrowing Base.



(i) Each redetermination of the Borrowing Base by the Administrative Agent and the Lenders
pursuant to this Section 2.02 shall be made (A) in the sole discretion of the Administrative Agent
and the Lenders (but in accordance with the other provisions of this Section 2.02(d)), (B) in
accordance with the Administrative Agent’s and the Lenders’ customary internal standards and
practices for valuing and redetermining the value of Oil and Gas Properties in connection with
reserve-based oil and gas loan transactions, (C) in conjunction with the most recent Independent
Engineering Report or Internal Engineering Report, as applicable, the most recent Oil and Gas
Property Certificate, Farmout/Participation Property Certificate, or other information received by
the Administrative Agent and the Lenders relating to the Oil and Gas Properties of the Borrower and
its Restricted Subsidiaries, (D) based upon the discounted present value of the estimated net cash
flows to be realized from the production of Hydrocarbons from Proved Reserves attributable to
Proved Properties, Farmout Properties and Participation Properties owned by the Borrower and its
Restricted Subsidiaries, as determined by the Administrative Agent and the Lenders, (E) based upon
the value of the estimated net revenues realized from the Open-Access Pipeline Properties, as
reasonably determined by the Administrative Agent and the Lenders, and/or (F) such other factors as
the Administrative Agent and the Lenders may consider in their sole discretion. In valuing and
redetermining the Borrowing Base, the Administrative Agent and the Lenders may (but shall not under
any circumstances be required to) also consider other assets, liabilities, cash flows, business,
properties, prospects, and management of the Borrower and its Restricted Subsidiaries and such
other factors as the Administrative Agent and the Lenders reasonably deem appropriate.



(ii) No Proved Properties, Farmout Properties, Participation Properties or Open-Access
Pipeline Properties of the Borrower or any of its Restricted Subsidiaries shall be included or
considered for inclusion in the Borrowing Base unless the Administrative Agent and the Lenders
shall have received, at the Borrower’s sole cost and expense, Oil and Gas Property Title
Information and Oil and Gas Property Description Information, in form and substance satisfactory to
the Administrative Agent and the Lenders, and evidence satisfactory to the Administrative Agent
that the Administrative Agent has an Acceptable Lien in such Oil and Gas Properties relating
thereto for the benefit of the Secured Parties pursuant to the Security Documents.



(iii) At all times after the Administrative Agent has given the Borrower notification of a
redetermination of the Borrowing Base under this Section 2.02, the Borrowing Base shall be equal to
the redetermined amount or such lesser amount designated by the Borrower and disclosed in writing
to the Administrative Agent and the Lenders until the Borrowing Base is subsequently redetermined
in accordance with this Section 2.02. It is expressly understood and agreed that the
Administrative Agent and Lenders have no obligation to designate the Borrowing Base at any
particular amount, except in the exercise of their discretion, whether in relation to the Total
Commitments or otherwise.



(iv) Any redetermination of the Borrowing Base shall be subject to the following restrictions:
(A) the Borrowing Base shall not at any time exceed the Total Commitments then in effect, (B) to
the extent any redetermined Borrowing Base would represent an increase in the Borrowing Base in
effect prior to such redetermination, such Borrowing Base must be approved by all of the Lenders,
and (C) to the extent any redetermined Borrowing Base would represent a decrease in the Borrowing
Base in effect prior to such redetermination or a reaffirmation of such prior Borrowing Base, the
Borrowing Base must be approved by the Administrative Agent and the Required Lenders. Any
redetermination of the Borrowing Base which results in a Borrowing Base Increase shall result in a
corresponding pro rata adjustment to each Lender’s Borrowing Base Commitment, which adjustment
shall be subject to Section 2.02(d)(v) below.


 


27









 





(v) Without limiting clause (iv) above, in the case of any proposed redetermination of the
Borrowing Base that would result in a Borrowing Base Increase, any Lender may elect to not increase
its Borrowing Base Commitment to reflect such Borrowing Base Increase, provided that (A)
such Lender (the “Electing Lender”) delivers written notice of such election to the
Administrative Agent at least five (5) Business Days prior to the date such proposed
redetermination is scheduled to take effect and (B) within five (5) Business Days of its receipt of
such notice, the Administrative Agent receives executed Assignment and Assumptions and other
written agreements from other Lenders, in form and substance satisfactory to the Administrative
Agent, that they will commit to make additional Loans (and to participate in additional L/C
Obligations) and commit to additional increases to their respective Borrowing Base Commitments in
an aggregate amount equal to such Electing Lender’s pro rata share of the Borrowing
Base Increase. Each such Lender’s, including the Electing Lender’s, Borrowing Base Commitment and
Borrowing Base Commitment Percentage shall be adjusted to give effect to such election.



(e) Conforming Borrowing Base. The Conforming Borrowing Base in effect as of the
Closing Date is $65,000,000 (the “Initial Conforming Borrowing Base”). The Conforming
Borrowing Base shall be utilized solely for purposes of determining the Conforming Borrowing Base
Usage under and for purposes of this Agreement. The amount of the Conforming Borrowing Base may be
redetermined on or about May 1, 2008, by the Administrative Agent and the Lenders in the same
manner as the Borrowing Base may be redetermined on or about such date as provided in this
Section 2.02. Notwithstanding the foregoing, beginning on June 30, 2008 and continuing through the
Termination Date, the Borrowing Base shall be an amount which is equal to the Conforming Borrowing
Base, as redetermined in accordance with Section 2.02, unless all of the Lenders agree in writing
that the Conforming Borrowing Base should thereafter be maintained at an amount which is lower than
the amount of the Borrowing Base then in effect.



Section 2.03. Procedure for Borrowing. The Borrower may borrow under the Commitments
during the Commitment Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice in the form of a Notice of Borrowing (which notice must be
received by the Administrative Agent prior to 12:00 Noon, Cleveland, Ohio time, (a) three (3)
Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one
(1) Business Day prior to the requested Borrowing Date, in the case of ABR Loans), specifying (i)
the amount and Type of Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the
case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Period therefor. Any Loans made on the Closing Date shall
initially be ABR Loans. Each borrowing under the Commitments shall be in an amount equal to (x) in
the case of ABR Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available
Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any Notice of
Borrowing from the Borrower, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its Borrowing Base Commitment Percentage of each borrowing
available to the Administrative Agent for the account of the Borrower at the Funding Office prior
to 12:00 noon, Cleveland, Ohio time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Administrative Agent. Such borrowing will then be made available to
the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such
office with the aggregate of the amounts made available to the Administrative Agent by the Lenders
and in like funds as received by the Administrative Agent.



Section 2.04. Unused Commitment Fees, Etc.



(a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender, in
accordance with its Borrowing Base Availability Percentage, an unused commitment fee for the period
from and including the Closing Date to the last day of the Commitment Period, computed at the
Unused Commitment Fee Rate times the average daily amount of the Borrowing Base Availability during
the period for which payment is made, payable quarterly in arrears on the last day of each March,
June, September and December and on the Termination Date, commencing on the first of such dates to
occur after the date hereof.



(b) The Borrower shall pay to the Arranger and the Administrative Agent for their own
respective accounts fees in the amounts and at the times specified in the Fee Letter.



Section 2.05. Termination or Reduction of Commitments. The Borrower shall have the
right, upon not less than three Business Days’ notice to the Administrative Agent, to terminate the
Commitments or, from time to time, to reduce the amount of the Commitments; provided that
no such termination or reduction of Commitments shall be permitted if, after giving effect thereto
and to any prepayments of the Loans made on the effective date thereof, the Aggregate Outstanding
Credit would exceed the Total Commitments then outstanding. Any such reduction shall be in an
amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the
Commitments then in effect. All fees in respect of this Agreement and the Loans accrued until
the effective date of any termination of this Agreement shall be paid on the effective date of such
termination.


 


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Section 2.06. Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice
delivered to the Administrative Agent at least three (3) Business Days prior thereto in the case of
Eurodollar Loans and at least one Business Day prior thereto in the case of ABR Loans, which notice
shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans
or ABR Loans or a combination thereof; provided, that if a Eurodollar Loan is prepaid on
any day other than the last day of the Interest Period applicable thereto, the Borrower shall also
pay any amounts owing pursuant to Section 2.17. Upon receipt of any such notice the Administrative
Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein, together with
(except in the case of Loans that are ABR Loans) accrued interest to such date on the amount
prepaid. Partial prepayments of Loans shall be in an aggregate principal amount of $1,000,000 or a
whole multiple thereof.



Section 2.07. Borrowing Base Deficiency; Mandatory Prepayments.



(a) If for any reason the Aggregate Outstanding Credit ever exceeds the Borrowing Base, the
Borrower shall, after receipt of written notice from the Administrative Agent regarding such
deficiency (a “Deficiency Notice”), deliver to the Administrative Agent within five (5)
days of its receipt of such Deficiency Notice, a written response (a “Response”) indicating
which of the following actions it will take to remedy the Borrowing Base deficiency (and the
failure of the Borrower to deliver such Response or to perform the action selected by the Borrower
in such Response to remedy such Borrowing Base deficiency shall constitute an Event of Default):



(i) prepay the Loans or, if the Loans have been repaid in full, Cash Collateralize the LC
Obligations, such that the Borrowing Base deficiency is cured within ten (10) days after the date
such Deficiency Notice is received by the Borrower; or



(ii) grant an Acceptable Lien in additional Oil and Gas Properties of the Borrower and the
Restricted Subsidiaries acceptable to the Administrative Agent and each of Lenders such that the
Borrowing Base deficiency is cured within fifteen (15) days after the date such Deficiency Notice
is received by the Borrower from the Administrative Agent.



(b) If for any reason the Aggregate Outstanding Credit at any time exceeds the amount of the
Total Commitments then in effect, the Borrower shall immediately prepay the Loans and LC
Reimbursement Obligations in an aggregate amount equal to such excess.



(c) Each prepayment of the Loans pursuant to this Section 2.07 shall be accompanied by accrued
and unpaid interest to the date of prepayment on the amount prepaid.



Section 2.08. Conversion and Continuation Options.



(a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by
giving the Administrative Agent at least two (2) Business Days’ prior irrevocable notice of such
election, provided that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR
Loans to Eurodollar Loans by giving the Administrative Agent at least three (3) Business Days’
prior irrevocable notice of such election (which notice shall specify the length of the initial
Interest Period therefor), provided that no ABR Loan may be converted into a Eurodollar
Loan when any Default or Event of Default has occurred and is continuing and the Administrative
Agent or the Required Lenders have determined in its or their sole discretion not to permit such
conversions. Upon receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof.



(b) Any Eurodollar Loan may be continued as such upon the expiration of the then current
Interest Period with respect thereto by the Borrower giving irrevocable notice to the
Administrative Agent, in accordance with the applicable provisions of the term “Interest Period”
set forth in Section 1.01, of the length of the next Interest Period to be applicable to such
Loans, provided that no Eurodollar Loan may be continued as such when any Default or Event
of Default has occurred and is continuing, and the Administrative Agent or the Required Lenders
have determined in its or their sole discretion not to permit such continuations, and
provided, further, that if the Borrower
shall fail to give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically
converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender thereof.


(c) Each notice by the Borrower pursuant to this Section 2.08 shall be given pursuant to a
Notice of Conversion/Continuation.




 


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Section 2.09. Limitations on Eurodollar Tranches. Notwithstanding anything to the
contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount
of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof and (b) no more than ten (10) Eurodollar Tranches shall be
outstanding at any one time.



Section 2.10. Interest Rates and Payment Dates.



(a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with
respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.



(b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable
Margin.



(c)     (i) If any amount of principal of any Loan or LC Reimbursement Obligation is not paid when
due (without regard to any applicable grace periods), whether at stated maturity, by acceleration
or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by applicable Requirements
of Law.



(ii) If any amount (other than principal of any Loan or LC Reimbursement Obligation) payable
by the Borrower under any Loan Document is not paid when due (without regard to any applicable
grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of
the Required Lenders such amount shall thereafter bear interest at a fluctuating interest rate per
annum at all times equal to the Default Rate to the fullest extent permitted by applicable
Requirements of Law.



(iii) Upon the request of the Required Lenders, while any Event of Default exists, the
Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a
fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent
permitted by applicable Requirements of Law.



(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest)
shall be due and payable upon demand.



(d) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date
applicable thereto and at such other times as may be specified herein. Interest hereunder shall be
due and payable in accordance with the terms hereof before and after judgment, and before and after
the commencement of any proceeding under any bankruptcy, insolvency, reorganization or similar law.



Section 2.11. Computation of Interest and Fees.



(a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day
year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on
which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the
basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each
determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening
of business on the day on which such change becomes effective. The Administrative Agent shall as
soon as practicable notify the Borrower and the Lenders of the effective date and the amount of
each such change in interest rate.


(b) Each determination of an interest rate by the Administrative Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the
absence of manifest error.




 


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Section 2.12. Inability to Determine Interest Rate. If prior to the first day of any
Interest Period:



(a) the Administrative Agent shall have determined (which determination shall be conclusive
and binding upon the Borrower) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest
Period, or



(b) the Administrative Agent shall have received notice from the Required Lenders that the
Eurodollar Rate determined or to be determined for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give facsimile or telephonic notice thereof to the Borrower and the
relevant Lenders as soon as practicable thereafter. If such notice is given (i) any Eurodollar
Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans,
(ii) any Loans that were to have been converted on the first day of such Interest Period to
Eurodollar Loans shall be continued as ABR Loans and (iii) any outstanding Eurodollar Loans shall
be converted, on the last day of the then-current Interest Period, to ABR Loans. Until such notice
has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans.



Section 2.13. Pro Rata Treatment and Payments.



(a) Each borrowing by the Borrower from the Lenders hereunder shall be made pro
rata according to the Borrowing Base Commitment Percentages of the Lenders. Each increase
or decrease of the Borrowing Base shall result in a pro rata increase or reduction of each Lender’s
Borrowing Base Commitment, except to the extent provided in Section 2.02(d)(v). Each reduction of
the Commitments of the Lenders shall be made pro rata according to the Applicable Percentages of
the Lenders.



(b) Each payment (including each prepayment) by the Borrower on account of principal of and
interest on the Loans shall be made pro rata according to the outstanding principal amounts of the
Loans then held by the Lenders.



(c) All payments (including prepayments) to be made by the Borrower hereunder, whether on
account of principal, interest, fees or otherwise, shall be made without any condition or deduction
for any counterclaim, defense, recoupment or setoff and shall be made prior to 12:00 Noon,
Cleveland, Ohio time, on the due date thereof to the Administrative Agent, for the account of the
Lenders, at the Funding Office, in Dollars and in immediately available funds. The Administrative
Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to the next succeeding
Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the
result of such extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In the case of any
extension of any payment of principal pursuant to the preceding two sentences, interest thereon
shall be payable at the then applicable rate during such extension.



(d) Unless the Administrative Agent shall have received notice from a Lender prior to the
proposed date of any borrowing that such Lender will not make available to the Administrative Agent
such Lender’s share of such borrowing, the Administrative Agent may assume that such Lender has
made such share available on such date in accordance with Section 2.03, and may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender
has not in fact made such amount available to the Administrative Agent, then the applicable Lender
and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such
corresponding amount with interest thereon, for each day from and including the date such amount is
made available to the Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Effective
Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on
interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest
rate applicable to ABR Loans. If the Borrower and such Lender shall pay such interest to the
Administrative Agent for the same or an overlapping period, the Administrative
Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower
for such period. If such Lender pays its share of the applicable borrowing to the Administrative
Agent, then the amount so paid shall constitute such Lender’s Loan included in such borrowing. Any
payment by the Borrower shall be without prejudice to any claim the Borrower may have against a
Lender that shall have failed to make such payment to the Administrative Agent.


 


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(e) Unless the Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of the Lenders or the
Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may
assume that the Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be,
the amount due. In such event, if the Borrower has not in fact made such payment, then each of the
Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative
Agent forthwith on demand the amount so distributed to such Lender or the Issuing Bank, with
interest thereon, for each day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation. Nothing herein shall be deemed to limit the rights of
the Administrative Agent, the Issuing Bank or any Lender against the Borrower.



(f) Whenever any payment received by the Administrative Agent under this Agreement or any of
the other Loan Documents is insufficient to pay in full all amounts due and payable to the
Administrative Agent, the Lenders, and the Issuing Bank under or in respect of this Agreement and
the other Loan Documents on any date, the Administrative Agent may, but shall not be obligated to,
distribute such payment in the order of priority set forth in Section 8.03. If the Administrative
Agent receives funds for application to the Obligations of the Loan Parties under or in respect of
the Loan Documents under circumstances for which the Loan Documents do not specify the manner in
which such funds are to be applied, the Administrative Agent may, but shall not be obligated to,
distribute such funds in the order of priority set forth in Section 8.03.



(g) The Borrower hereby authorizes each Lender and each of its Affiliates, if and to the
extent any payment owed to such Lender is not made when due hereunder or any other Loan Document,
to charge from time to time, to the fullest extent permitted by applicable law, against any or all
of the Borrower’s accounts with such Lender or such Affiliate any amount so due.



(h) The obligations of the Lenders hereunder to make Loans to fund participations in Letters
of Credit and to make payments pursuant to Section 10.05(c) are several and not joint. The failure
of any Lender to make any Loan, to fund any such participation or to make any payment under
Section 10.05(c) on any date required hereunder, shall not relieve any other Lender of its
corresponding obligation to do so on such date, and no Lender shall be responsible for the failure
of any other Lender to make its Loan, to purchase its participation or to make its payment under
Section 10.05(c).



(i) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in
any particular place or manner or to constitute a representation by any Lender that it has obtained
or will obtain funds for any Loan in any particular place or manner.



Section 2.14. Illegality. Notwithstanding any other provision herein, if the adoption
of or any change in any Requirement of Law or in the interpretation or application thereof shall
make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this
Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and
(b) such Lender’s Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law. If any such conversion of
a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period
with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.17.


 


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Section 2.15. Increased Costs.



(a) Increased Costs Generally. If any Change in Law shall:



(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance
charge or similar requirement against assets of, deposits with or for the account of, or credit
extended or participated in by, any Lender (except any reserve requirement reflected in the
Eurodollar Rate) or the Issuing Bank;



(ii) subject any Lender or the Issuing Bank to any tax of any kind whatsoever with respect to
this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar
Loan made by it, or change the basis of taxation of payments to such Lender or the Issuing Bank in
respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 2.16 and the
imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the Issuing
Bank); or



(iii) impose on any Lender or the Issuing Bank or the London interbank market any other
condition, cost or expense affecting this Agreement or Eurodollar Loans made by such Lender or any
Letter of Credit or participation therein;



and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any Eurodollar Loan), or
to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining
any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of
Credit), or to reduce the amount of any sum received or receivable by such Lender or the Issuing
Bank hereunder (whether of principal, interest or any other amount) then, upon request of such
Lender or the Issuing Bank, the Borrower will pay to such Lender or the Issuing Bank, as the case
may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as
the case may be, for such additional costs incurred or reduction suffered.



(b) Capital Requirements. If any Lender or the Issuing Bank determines that any
Change in Law affecting such Lender or the Issuing Bank or any lending office of such Lender or
such Lender’s or the Issuing Bank’s holding company, if any, regarding capital requirements has or
would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital
or on the capital of such Lender’s or the Issuing Bank’s holding company, if any, as a consequence
of this Agreement, the Commitments of such Lender or the Loans made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s
holding company could have achieved but for such Change in Law (taking into consideration such
Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing Bank’s
holding company with respect to capital adequacy), then from time to time the Borrower will pay to
such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company
for any such reduction suffered.



(c) Certificates for Reimbursement. A certificate of a Lender or the Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and
delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such
Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate
within ten (10) days after receipt thereof.



(d) Delay in Requests. Failure or delay on the part of any Lender or the Issuing Bank
to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or
the Issuing Bank’s right to demand such compensation, provided that the Borrower shall not be
required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased
costs incurred or reductions suffered more than nine (9) months prior to the date that such Lender
or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to
such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim
compensation therefor (except that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the nine-month period referred to above shall be extended to
include the period of retroactive effect thereof).



(e) Survival. The obligations of the Borrower pursuant to this Section shall survive
the termination of this Agreement and the payment of the Loans and all other amounts payable
hereunder.


 


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Section 2.16. Taxes.



(a) Payment Free of Taxes. Any and all payments by or on account of any obligation of
the Borrower or Holdings hereunder or under any other Loan Document shall be made free and clear of
and without reduction or
withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower or
Holdings shall be required by applicable law to deduct any Indemnified Taxes (including any Other
Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional sums payable under
this Section) the Administrative Agent, Lender or Issuing Bank, as the case may be, receives an
amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower
or Holdings, as the case may be, shall make such deductions and (iii) the Borrower or Holdings, as
the case may be, shall timely pay the full amount deducted to the relevant Governmental Authority
in accordance with applicable law.



(b) Payment of Other Taxes. Without limiting the provisions of paragraph (a) above,
the Borrower and Holdings shall timely pay any Other Taxes to the relevant Governmental Authority
in accordance with applicable law.



(c) Indemnification. The Borrower and Holdings shall, jointly and severally,
indemnify the Administrative Agent, each Lender and the Issuing Bank, within ten (10) days after
demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified
Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section)
paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, and any
penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower or Holdings, as applicable, by a Lender or the Issuing Bank (with a copy
to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a
Lender or the Issuing Bank, shall be conclusive absent manifest error.



(d) Evidence of Payments. As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower or Holdings, as the case may be, to a Governmental Authority,
the Borrower or Holdings, as the case may be, shall deliver to the Administrative Agent the
original or a certified copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.



(e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the Borrower or Holdings,
as the case may be, is resident for tax purposes, or any treaty to which such jurisdiction is a
party, with respect to payments hereunder or under any other Loan Document shall deliver to the
Borrower and Holdings (with a copy to the Administrative Agent), at the time or times prescribed by
applicable law or reasonably requested by the Borrower, Holdings or the Administrative Agent, such
properly completed and executed documentation prescribed by applicable law as will permit such
payments to be made without withholding or at a reduced rate of withholding. In addition, any
Lender, if requested by the Borrower, Holdings or the Administrative Agent, shall deliver such
other documentation prescribed by applicable law or reasonably requested by the Borrower, Holdings
or the Administrative Agent as will enable the Borrower, Holdings or the Administrative Agent to
determine whether or not such Lender is subject to backup withholding or information reporting
requirements.



(f) Survival. The agreements in this Section shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.



Section 2.17. Indemnity. The Borrower agrees to indemnify each Lender and to hold
each Lender harmless from any loss or expense that such Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing of, conversion into or
continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (b) default by the Borrower in making any
prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement, (c) the making of a prepayment of Eurodollar
Loans on a day that is not the last day of an Interest Period with respect thereto, or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.20. Such indemnification
may include an amount equal to the excess, if any, of (i) the amount of interest that would have
accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from
the date of such prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein (excluding, however, the Applicable Margin included
therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender)
that would have accrued to such Lender on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market. A certificate as to
any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. The Borrower shall pay such Lender the amount shown
as due on any such Certificate within ten (10) days after receipt thereof. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.



 


34









 





Section 2.18. Use of Proceeds. The proceeds of the Loans shall be available (and the
Borrower agrees that it will use such proceeds and Letters of Credit) solely for general corporate
purposes of the Borrower and the Restricted Subsidiaries in the ordinary course of business,
including the exploration, acquisition and development of Oil and Gas Properties. Letters of
Credit will be issued only to support general corporate purposes of the Borrower and the Restricted
Subsidiaries in the ordinary course of business.



Section 2.19. Evidence of Debt.



(a) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from
time to time, including the amounts of principal and interest payable and paid to such Lender from
time to time under this Agreement.



(b) The Administrative Agent shall maintain the Register pursuant to Section 10.06(c), and a
subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder, the Type thereof and each Interest Period applicable thereto, and each Lender’s
Commitment (including its Borrowing Base Commitment) and the principal amount of each Lender’s pro
rata share of such Loan, (ii) the amount of any principal or interest due and payable or to become
due and payable to the Lenders hereunder, (iii) the amount of each Lender’s participation in
outstanding Letters of Credit and (iv) both the amount of any sum received by the Administrative
Agent hereunder from the Borrower and each Lender’s share thereof.



(c) The entries made in the Register and the accounts of each Lender maintained pursuant
hereto shall, to the extent permitted by applicable law, be prima facie evidence of the existence
and amounts of the obligations of the Borrower therein recorded, provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or any such account, or
any error therein, shall not in any manner affect the obligation of the Borrower to repay (with
applicable interest) the Loans made to the Borrower in accordance with the terms of this Agreement.



(d) The Borrower agrees that, upon the request to the Administrative Agent by any applicable
Lender, the Borrower will execute and deliver to such Lender, as appropriate, a promissory note of
the Borrower evidencing the Loans of such Lender, substantially in the form of Exhibit D
with appropriate insertions as to date and principal amount (a “Note”). Each Lender is
hereby authorized to record the Borrowing Date, the amount of each relevant Loan and the date and
amount of each payment or prepayment of principal thereof, on the schedule annexed to and
constituting a part of the Note evidencing such Loan and any such recordation shall constitute
prima facie evidence of the accuracy of the information so recorded, provided that the failure by a
Lender to make any such recordation (or any error therein) shall not affect any of the obligations
of the Borrower under such Note or this Agreement.



Section 2.20. Mitigation Obligations; Replacement of Lenders.



(a) If any Lender requests compensation under Section 2.15, or requires the Borrower to pay
any additional amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different
lending office for funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender,
such designation or assignment (i) would eliminate or reduce amounts payable pursuant to
Section 2.15 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to
any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.



 


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 (b) If any Lender requests compensation under Section 2.15, or if the Borrower is required to
pay any additional amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 2.16, or if any Lender is a Defaulting Lender, then the Borrower may, at its
sole expense and effort, upon notice to such Lender and the Administrative Agent, require such
Lender to assign and delegate, without recourse
(in accordance with and subject to the restrictions contained in, and consents required by,
Section 10.06), all of its interests, rights and obligations under this Agreement and the related
Loan Documents to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that:



(i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in
Section 10.06;



(ii) such Lender shall have received payment of an amount equal to the outstanding principal
of its Loans and participations in LC Reimbursement Obligations, accrued interest thereon, accrued
fees and all other amounts payable to it hereunder and under the other Loan Documents (including
any amounts under Section 2.17) from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts);



(iii) in the case of any such assignment resulting from a claim for compensation under
Section 2.15 or payments required to be made pursuant to Section 2.16, such assignment will result
in a reduction in such compensation or payments thereafter; and



(iv) such assignment does not conflict with applicable Requirements of Law.



A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.



ARTICLE III




LETTERS OF CREDIT




Section 3.01. LC Commitment.



(a) Subject to the terms and conditions hereof, the Issuing Bank, in reliance on the
agreements of the other Lenders set forth in Section 3.04(a), agrees to issue letters of credit
(“Letters of Credit”) for the account of the Borrower on any Business Day during the
Commitment Period in such form as may be approved from time to time by the Issuing Bank;
provided that the Issuing Bank shall have no obligation to issue any Letter of Credit if,
after giving effect to such issuance, (i) the LC Obligations would exceed the LC Commitment, (ii)
the Aggregate Outstanding Credit would exceed the Borrowing Base, or (iii) the aggregate amount of
the Available Commitments would be less than zero.



(b) Each Letter of Credit shall (i) be denominated in Dollars, (ii) have a face amount of at
least $250,000 (unless otherwise agreed by the Issuing Bank), and (iii) expire no later than the
earlier of (x) the first anniversary of its date of issuance and (y) the date that is one (1) year
after the Termination Date, provided that any Letter of Credit with a one-year term may
provide for the renewal thereof for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (y) above); provided, further, that any
Letter of Credit that expires after the Termination Date shall be Cash Collateralized at all times.



(c) Letters of Credit may be either standby letters of credit or commercial letters of credit.



(d) Each Letter of Credit shall be subject to ISP98 or the Uniform Customs and, to the extent
not inconsistent therewith, the laws of the State of Ohio.



 


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(e) The Issuing Bank shall not at any time be obligated to issue any Letter of Credit if:



(i) the issuance of such Letter of Credit would conflict with, or cause the Issuing Bank or
any LC Participant to exceed any limits imposed by, any applicable Requirement of Law;



(ii) any order, judgment or decree of any Governmental Authority or arbitrator shall by its
terms purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any
Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank
shall prohibit or request that the Issuing Bank
refrain from, the issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise
compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the
Issuing Bank in good faith deems material to it;



(iii) the issuance of such Letter of Credit would violate one or more policies of the Issuing
Bank; or



(iv) any Lender is at such time a Defaulting Lender hereunder, unless the Issuing Bank has
entered into satisfactory arrangements with the Borrower or such Lender to eliminate the Issuing
Bank’s risk with respect to such Lender.



(f) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit
issued by it and the documents associated therewith, and the Issuing Bank shall have all of the
benefits and immunities (i) provided to the Administrative Agent in Article IX or Section 10.05(c)
with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters
of Credit issued by it or proposed to be issued by it and the documents associated therewith as
fully as if the term “Administrative Agent” or “Agent” as used in Article IX or Section 10.05(c)
included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided
herein with respect to the Issuing Bank.



(g) References herein to “issue” and derivations thereof with respect to Letters of Credit
shall also include extensions or modifications of any outstanding Letters of Credit, unless the
content otherwise requires.



Section 3.02. Procedure for Issuance of Letter of Credit. The Borrower may from time
to time request that the Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at
its address for notices specified herein an Application therefor, completed to the satisfaction of
the Issuing Bank, and such other certificates, documents and other papers and information as the
Issuing Bank may request. Upon receipt of any Application, the Issuing Bank will process such
Application and the certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall promptly issue the
Letter of Credit requested thereby (but in no event shall the Issuing Bank be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the Application therefor and
all such other certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be
agreed to by the Issuing Bank and the Borrower. The Issuing Bank shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Bank shall
promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders,
notice of the issuance of each Letter of Credit (including the amount thereof).



Section 3.03. Letter of Credit Fees, Commissions and Other Charges.



(a) The Borrower will pay a fee on all outstanding Letters of Credit at a per annum rate equal
to the Applicable Margin then in effect with respect to Eurodollar Loans, shared ratably among the
Lenders and payable quarterly in arrears on each LC Fee Payment Date after the issuance date. In
addition, the Borrower shall pay to the Issuing Bank for its own account a fronting fee of 0.125%
per annum on the stated face of each Letter of Credit, payable quarterly in arrears on each LC Fee
Payment Date after the issuance date.



(b) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Bank
for such normal and customary costs and expenses as are incurred or charged by the Issuing Bank in
issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of
Credit.



 


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Section 3.04. LC Participations.



(a) The Issuing Bank irrevocably agrees to grant and hereby grants to each LC Participant,
and, to induce the Issuing Bank to issue Letters of Credit hereunder, each LC Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Bank,
on the terms and conditions hereinafter stated, for such LC Participant’s own account and risk an
undivided interest equal to such LC Participant’s Borrowing Base Commitment Percentage in the
Issuing Bank’s obligations and rights under and in respect of each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each LC Participant
unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is paid under any
Letter of Credit for
which the Issuing Bank is not reimbursed in full by the Borrower in accordance with the terms
of this Agreement, such LC Participant shall pay to the Issuing Bank upon demand at the Issuing
Bank’s address for notices specified herein an amount equal to such LC Participant’s interest in
such draft, or any part thereof, that is not so reimbursed.



(b) If any amount required to be paid by any LC Participant to the Issuing Bank pursuant to
Section 3.04(a) in respect of any unreimbursed portion of any payment made by the Issuing Bank
under any Letter of Credit is paid to the Issuing Bank within three (3) Business Days after the
date such payment is due, such LC Participant shall pay to the Issuing Bank on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate
during the period from and including the date such payment is required to the date on which such
payment is immediately available to the Issuing Bank, times (iii) a fraction the numerator of which
is the number of days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any LC Participant pursuant to Section 3.04(a) is not made
available to the Issuing Bank by such LC Participant within three (3) Business Days after the date
such payment is due, the Issuing Bank shall be entitled to recover from such LC Participant, on
demand, such amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans. A certificate of the Issuing Bank submitted to any LC Participant with
respect to any amounts owing under this Section shall be conclusive in the absence of manifest
error.



(c) Whenever, at any time after the Issuing Bank has made payment under any Letter of Credit
and has received from any LC Participant its pro rata share of such payment in accordance with
Section 3.04(a), the Issuing Bank receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Bank), or any payment of interest on account thereof, the Issuing Bank will distribute to
such LC Participant its pro rata share thereof; provided, however, that in the event that any such
payment received by the Issuing Bank shall be required to be returned by the Issuing Bank, such LC
Participant shall return to the Issuing Bank the portion thereof previously distributed by the
Issuing Bank to it.



(d) Each LC Participant’s obligation to purchase participating interests pursuant to
Section 3.04(a) shall be absolute and unconditional and shall not be affected by any circumstance,
including (i) any setoff, counterclaim, recoupment, defense or other right that such LC Participant
or the Borrower may have against the Issuing Bank, the Borrower or any other Person for any reason
whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default or the failure
to satisfy any of the other conditions specified in Article IV; (iii) any adverse change in the
condition (financial or otherwise) of any Loan Party; (iv) any breach of this Agreement or any
other Loan Document by the Borrower, any other Loan Party or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.



Section 3.05. Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse the Issuing Bank on the Business Day next succeeding the Business Day on which the
Issuing Bank notifies the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Bank for the amount of (a) such draft so paid and (b) any Taxes,
fees, charges or other costs or expenses incurred by the Issuing Bank in connection with such
payment. Each such payment shall be made to the Issuing Bank at its address for notices specified
herein in Dollars and in immediately available funds. Interest shall be payable on any such
amounts from the date on which the relevant draft is paid until payment in full at the rate set
forth in (i) until the Business Day next succeeding the date of the relevant notice,
Section 2.10(b) and (ii) thereafter, the Default Rate.



 


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Section 3.06. Obligations Absolute. The Borrower’s obligations under this Article III
(including its reimbursement obligations under Section 3.05) shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under
any and all circumstances whatsoever and irrespective of (a) any lack of validity or enforceability
of any Letter of Credit or this Agreement, or any term or provision therein, (b) any draft or other
document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any respect, (c) payment by the
Issuing Bank under a Letter of Credit against presentation of a draft or other document that does
not comply with the terms of such Letter of Credit, or (d) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of
this Section, constitute a legal or equitable discharge of, or provide a right of setoff against,
the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor the
Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or
failure to make any payment thereunder (irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss or delay in transmission or
delivery of any draft, notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in interpretation
of technical terms or any consequence arising from causes beyond the control of the Issuing
Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to consequential damages,
claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable
law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care when
determining whether drafts and other documents presented under a Letter of Credit comply with the
terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or
willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent
jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination.



Section 3.07. Letter of Credit Payments. If any draft shall be presented for payment
under any Letter of Credit, the Issuing Bank shall promptly notify the Borrower of the date and
amount thereof. The responsibility of the Issuing Bank to the Borrower in connection with any
draft presented for payment under any Letter of Credit shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.



Section 3.08. Applications. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this Article III, the
provisions of this Article III shall apply.



Section 3.09. Cash Collateral Pledge. If there are any outstanding LC Obligations on
the Termination Date, then the Borrower shall immediately Cash Collateralize all such outstanding
LC Obligations.



ARTICLE IV




CONDITIONS PRECEDENT




Section 4.01. Conditions to Initial Credit Extension. The obligation of each Lender
to maintain as Loans and Letters of Credit hereunder the loans made to the Borrower and letters of
credit issued for the account of the Borrower under the Existing Credit Agreement, and the
agreement of each Lender to make any initial Credit Extension requested to be made by it hereunder,
are subject to the satisfaction on the Closing Date, of the following conditions precedent:



(a) Credit Agreement; Other Loan Documents. The Administrative Agent shall have
received the following, each of which shall be originals or, at the discretion of the
Administrative Agent, telecopies (followed promptly by originals) unless otherwise specified, each
properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date
(except for the Existing Oil and Gas Mortgages referenced in Section 4.01(c)(vii) below) (or, in
the case of certificates of government officials, a recent date before the Closing Date) and each
in form and substance satisfactory to the Administrative Agent:



(i) this Agreement, duly executed and delivered by the Administrative Agent, Holdings, the
Borrower and each Person listed on Schedule 1.01A;



(ii) for the account of each of the Lenders that has requested a Note pursuant to
Section 2.19(d), a Note conforming to the requirements hereof and duly executed and delivered by a
duly authorized officer of the Borrower;



(iii) the Guarantee and Collateral Agreement, duly executed and delivered by each Loan Party;



(iv) the Holdings Guarantee, duly executed and delivered by Holdings;



(v) the Holdings Pledge Agreement, duly executed and delivered by Holdings;



(vi) the deposit account control agreements referred to in and required by Section 6.14 of
this Agreement, duly executed by the Administrative Agent, the applicable Loan Parties, and the
applicable financial institutions;



(vii) executed copies of the Existing Oil and Gas Mortgages covering the Oil and Gas
Proeprties proposed to be included in the Initial Borrowing Base.


 


39









 





(viii) the Existing Farmout Agreement Consents, duly executed and delivered by the Borrower
and each Approved Counterparty which is a party thereto;



(ix) the Disbursement Letter, duly executed and delivered by the Borrower.



(b) Resolutions. The Administrative Agent shall have received from each Loan Party,
as applicable, (i) a copy of a good standing certificate, dated a date reasonably close to the
Closing Date, for each such Person and (ii) a certificate, dated the Closing Date and with
counterparts for each Lender, duly executed and delivered by such Person’s Secretary or Assistant
Secretary, managing member or general partner, as applicable, as to




(A) resolutions of each such Person’s Board of Directors (or other managing body, in
the case of other than a corporation) then in full force and effect authorizing the
execution, delivery and performance of each Loan Document to be executed by such Person and
the transactions contemplated hereby and thereby;




(B) the incumbency and signatures of those of its officers, managing member or general
partner, as applicable, authorized to act with respect to each Loan Document to be executed
by such Person; and




(C) the full force and validity of each Organizational Document of such Person and
copies thereof;



upon which certificates the Administrative Agent and each Lender may conclusively rely until they
shall have received a further certificate of the Secretary, Assistant Secretary, managing member or
general partner, as applicable, of any such Person canceling or amending the prior certificate of
such Person.



(c) Financial Statements. The Lenders shall have received (i) audited consolidated
and consolidating financial statements of Holdings and its consolidated Subsidiaries for the 2004,
2005, 2006 and 2007 Fiscal Years and (ii) unaudited interim consolidated and consolidating
financial statements of Holdings and its consolidated Subsidiaries for each fiscal month and
quarterly period ended subsequent to the date of the latest applicable financial statements
delivered pursuant to clause (i) of this paragraph as to which such financial statements are
available, and such financial statements shall not, in the reasonable judgment of the Lenders,
reflect any material adverse change in the consolidated financial condition of Holdings, the
Borrower or any of its Subsidiaries, as reflected in the financial statements or projections
contained in the Confidential Information Memorandum.



(d) Approvals. The Administrative Agent shall be satisfied that all governmental and
third party licenses, permits, consents and approvals necessary in connection with the borrowings
hereunder and the transactions contemplated hereby shall have been obtained and be in full force
and effect. No order, decree, judgment, ruling or injunction shall exist which restrains the
consummation of the transactions contemplated by the Loan Documents.



(e) Initial Engineering Report. The Administrative Agent and its counsel and
engineers shall have received and reviewed an Internal Engineering Report covering the Oil and Gas
Properties of the Borrower and its Restricted Subsidiaries meeting the requirements applicable to
such Engineering Reports set forth in this Agreement and otherwise in form and substance
satisfactory to the Administrative Agent and the Lenders in their sole discretion (the “Initial
Engineering Report”).



(f) Reserved.



(g) Existing Leases, Existing Farmout Agreements and Existing Farmout Property
Assignments. The Administrative Agent and the Lenders shall have received true, correct and
complete executed and recorded (if applicable) copies of each of (i) each Existing Lease and all
amendments thereto through and including the date hereof, that are requested by the Administrative
Agent or its counsel, (ii) the Existing Farmout Agreements, and all amendments thereto through and
including the date hereof, thereto and (iii) each Existing Farmout Property Assignment and all
amendments thereto through and including the date hereof that are requested by the Administrative
Agent or its counsel.



(h) Reserved.


 


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(i) Lien Searches. The Administrative Agent shall have received the results of recent
Lien searches by a Person satisfactory to the Administrative Agent, of the Uniform Commercial Code,
Intellectual Property, judgment and tax lien filings that may have been filed with respect to
personal property of the Loan Parties, and the results of such searches shall be satisfactory in
form and substance to the Administrative Agent.



(j) Environmental Matters. The Administrative Agent and the Lenders shall be
satisfied with the environmental condition of the Oil and Gas Properties and other assets of the
Borrower and its Restricted Subsidiaries.



(k) Fees and Expenses. The Lenders and the Administrative Agent shall have received
all fees and other amounts required to be paid, and all costs and expenses for which invoices have
been presented (including the reasonable fees, expenses and disbursements of legal counsel), on or
before the Closing Date, together with such additional amounts as shall constitute each such
counsel’s reasonable estimate of fees, expenses and disbursements to be incurred by such counsel in
connection with the recording and filings of any Mortgages and UCC financing statements. All such
amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the
funding instructions given by the Borrower to the Administrative Agent on or before the Closing
Date.



(l) Closing Certificates. The Administrative Agent shall have received, with a
counterpart for each Lender, (i) a certificate of Holdings, dated on or about the Closing Date,
substantially in the form of Exhibit B-1, with appropriate insertions and attachments, (ii)
a certificate of the Borrower, dated on or about the Closing Date, substantially in the form of
Exhibit B-2, with appropriate insertions and attachments, and (iii) a certificate of NGAS
Gathering, dated on or about the Closing Date, substantially in the form of Exhibit B-3,
with appropriate insertions and attachments.



(m) Legal Opinions. The Administrative Agent shall have received the following
executed legal opinions:



(i) the legal opinion of Stephen P. Carson, senior corporate counsel of Holdings, the Borrower
and the Restricted Subsidiaries, substantially in the form of Exhibit F-1;



(ii) the legal opinion of Black, McCuskey, Souers & Arbaugh, special Ohio counsel to the
Administrative Agent, substantially in the form of Exhibit F-2; and



(iii) the legal opinion of Maitland & Company, Barristers and Solicitors, special Canadian
counsel to Holdings, substantially in the form of Exhibit F-3.



Each such legal opinion shall cover such other matters incident to the transactions contemplated by
this Agreement as the Administrative Agent may reasonably require.



(n) Pledged Equity Interests; Pledged Notes. The Administrative Agent shall have
received (i) the certificates representing the Pledged Equity Interests and the Pledged Stock (as
defined in the Holdings Pledge Agreement), together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each of
the Pledged Notes endorsed (without recourse) in blank (or accompanied by an executed transfer form
in blank) by the pledgor thereof.



(o) Actions to Perfect Liens. The Administrative Agent shall have received evidence
satisfactory to it that all filings, recordings, registrations, and other actions necessary, or in
the opinion of the Administrative Agent, desirable to perfect and protect the Liens created by the
Security Documents (other than the Mortgages) shall have been completed or authorized (including,
without limitation, the filing of financing statements on form UCC-1 and receipt by the
Administrative Agent of duly executed payoff letters, UCC-3 termination statements (or
authorizations to terminate financing statements)).



(p) Solvency Certificate. The Administrative Agent shall have received (i) a Solvency
Certificate, in substantially the form of Exhibit I-1, executed by the chief financial
officer of Holdings, and a Solvency Certificate, in substantially the form of Exhibit I-2,
executed by the chief financial officer of the Borrower.



(q) Reserved.


 


41









 





(r) Insurance. The Administrative Agent shall have received insurance certificates
and endorsements satisfying the requirements of Section 6.06(b) of this Agreement and
Section 5.02(b) of the Guarantee and Collateral Agreement.



(s) Other Agreements. The Administrative Agent shall have received true and correct
executed copies, certified as to authenticity by the Borrower, of the NGAS Securities Purchase
Documents, and such other documents or instruments as may be requested by the Administrative Agent,
including a copy of each Hedge Agreement, Drilling Program Agreement, debt instrument, security
agreement, mortgage, deed of trust, and other Material Contract to which any Loan Party or any of
its Subsidiaries may be a party, together with all amendments, modifications and supplements to any
of the foregoing.



(t) No Litigation. There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any
court, governmental agency or arbitrator that could reasonably be expected to have a Material
Adverse Effect.



(u) Capitalization; Legal Structure. The Lenders shall be satisfied with the
organizational and legal structure and capitalization of each Loan Party and each of its
Subsidiaries, including the terms and conditions of their Organizational Documents and each class
of Equity Interests in each Loan Party and each such Subsidiary and of each agreement or instrument
relating to such structure or capitalization.



Without limiting the generality of the provisions of Section 9.04, for purposes of determining
compliance with the conditions specified in this Section 4.01, each Lender that has signed this
Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter required thereunder to be consented to or approved by or acceptable or
satisfactory to a Lender unless the Administrative Agent shall have received notice from such
Lender prior to the proposed Closing Date specifying its objection thereto.



Section 4.02. Conditions to Each Credit Extension. The agreement of each Lender to
make any Credit Extension requested to be made by it on any date (including its initial Credit
Extension) is subject to the satisfaction of the following conditions precedent:



(a) Representations and Warranties. Each of the representations and warranties of
each Loan Party contained in each Loan Document to which such Loan Party is a party shall be true
and correct on and as of such date, before and after giving effect to such Credit Extension and
application of the proceeds therefrom, as if made on and as of such date, except to the extent that
such representations and warranties specifically refer to an earlier date, in which case, they
shall be true and correct as of such earlier date;



(b) No Default. No Default or Event of Default shall have occurred and be continuing
on such date or would result from such Credit Extension or the application of the proceeds
therefrom;



(c) Availability. After giving effect to any Credit Extension, Availability would not
be less than zero; and



(d) Additional Matters. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions contemplated by this
Agreement, the other Loan Documents shall be satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received such other documents and
legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.



Each Credit Extension hereunder shall be deemed to be a representation and warranty by the Borrower
that the conditions specified in this Section 4.02 have been satisfied on and as of the date of the
applicable Credit Extension.



 


42









 




ARTICLE V




REPRESENTATIONS AND WARRANTIES




To induce the Administrative Agent, the Issuing Bank and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of Credit, Holdings and the
Borrower hereby jointly and severally represent and warrant to the Administrative Agent, the
Issuing Bank and each Lender that:



Section 5.01. Financial Condition. The audited consolidated and consolidating balance
sheets of Holdings and its Subsidiaries as at December 31, 2005, December 31, 2006, and
December 31, 2007, and the related consolidated and consolidating statements of income and of cash
flows for the Fiscal Years ended on such dates, reported on by and accompanied by an unqualified
report from Hall Kistler & Company, LLP, present fairly on a consolidated and consolidating basis
the financial condition of Holdings and its Subsidiaries as at such date, and on a consolidated and
consolidating basis the results of their operations and their cash flows for the respective Fiscal
Years then ended. The unaudited consolidated and consolidating balance sheets of Holdings and its
Subsidiaries as at March 31, 2008, and the related unaudited consolidated and consolidating
statements of income and cash flows for the three-month period ended on such date, present fairly
the consolidated and consolidating financial condition of Holdings and its Subsidiaries as at such
date, and the results of their operations and their consolidated and consolidating cash flows for
the three (3) month period then ended (subject to normal year-end audit adjustments). All such
financial statements, including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved (except as approved by
the aforementioned firm of accountants and disclosed therein). No Group Member has any material
Indebtedness or Guarantee Obligations, contingent obligations or liabilities of any kind (including
any liabilities for taxes, obligations under farm-in agreements or similar arrangements,
obligations under long-term leases and unusual forward or long-term commitments (or unrealized or
anticipated losses from any unfavorable commitments), and any obligations in respect of Hedge
Agreements and Synthetic Debt) that are not referred to or reflected or provided for in the most
recent financial statements referred to in this paragraph. During the period from December 31,
2007, to and including the date hereof there has been no Disposition by any Group Member of any
material part of its business or property.



Section 5.02. No Change. Since December 31, 2007, there has been no development,
event or circumstance that has had or could reasonably be expected to have a Material Adverse
Effect.



Section 5.03. Existence; Compliance With Requirements of Law. Each Group Member (a)
is duly incorporated or organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority, and the legal right,
to own and operate its property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign corporation or other
entity and in good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification and (d) is in
compliance with all Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.



Section 5.04. Power; Authorization; Enforceable Obligations. Each Loan Party has the
corporate or other organizational power and authority, and the legal right, to make, deliver and
perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain
extensions of credit hereunder. Each Loan Party has taken all necessary organizational action to
authorize the execution, delivery and performance of the Loan Documents to which it is a party and,
in the case of the Borrower, to authorize the Credit Extensions on the terms and conditions of this
Agreement. No consent or authorization of, filing with, notice to or other act by or in respect
of, any Governmental Authority or any other Person is required in connection with the extensions of
credit hereunder or with the execution, delivery, performance, validity or enforceability of this
Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices
described in Schedule 5.04, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect and (ii) the filings referred to in Section 5.19.
Each Loan Document has been duly executed and delivered on behalf of each Loan Party thereto.
This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal,
valid and binding obligation of each Loan Party thereto, enforceable against each such Loan Party
in accordance with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally and by general equitable principles (whether enforcement is sought by proceedings
in equity or at law).



Section 5.05. No Legal Bar. The execution, delivery and performance of this Agreement
and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the
use of the proceeds thereof will not violate, conflict with or create a default under any
Requirement of Law or any Contractual Obligation of any Group Member and will not result in, or
require, the creation or imposition of any Lien on any of their respective properties or revenues
pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created
by the Security Documents). No Requirement of Law or Contractual Obligation applicable to any Loan
Party could reasonably be expected to have a Material Adverse Effect.


 


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Section 5.06. Litigation. No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of Holdings or the Borrower,
threatened by or against any Group Member or against any of their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions contemplated thereby or
(b) that could reasonably be expected to have a Material Adverse Effect.



Section 5.07. No Default. No Group Member is in default under or with respect to any
of its Contractual Obligations in any respect that could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.



Section 5.08. Ownership of Property; Liens. Except as otherwise provided in
Section 5.18 with respect to Oil and Gas Properties, each Group Member has title in fee simple to,
or a valid leasehold interest in, all of its real Property, and good title to, or a valid leasehold
interest in, all of its other Property, and none of such Property of any Loan Party is subject to
any Lien except Permitted Liens.



Section 5.09. Intellectual Property. Each Group Member owns, or is licensed to use,
all Intellectual Property necessary for the conduct of its business as currently conducted. No
material claim has been asserted and is pending by any Person challenging or questioning the use of
any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does
Holdings or the Borrower know of any valid basis for any such claim. The use of Intellectual
Property by each Group Member does not infringe on the rights of any Person in any material
respect.



Section 5.10. Taxes. Each Group Member has filed or caused to be filed all Federal,
state and other Tax returns that are required to be filed and has paid all Taxes shown to be due
and payable on said returns or on any assessments made against it or any of its Property and all
other Taxes, fees or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have
been provided on the books of the relevant Group Member); no Tax Lien has been filed, and, to the
knowledge of Holdings and the Borrower, no claim is being asserted, with respect to any such Tax,
fee or other charge. The Federal income Tax liabilities of each Group Member have been audited by
the Internal Revenue Service and satisfied for all taxable years up to and including the taxable
year December 31, 2006. No Group Member is a party to any Tax sharing or Tax allocation agreement.



Section 5.11. Margin Stock. No Loan Party is engaged principally, or as one of its
important activities, in the business of extending credit for, and no part of the proceeds of any
Loans will be used for, “buying” or “carrying” any “margin stock” within the respective meanings of
each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for
any purpose that violates the provisions of the Regulations of the Board. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each
Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR
Form U-1, as applicable, referred to in Regulation U.



Section 5.12. Labor Matters. Except as, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes
against any Group Member pending or, to the knowledge of Holdings or the Borrower, threatened; (b)
hours worked by and payment made to employees of each Group Member have not been in violation of
the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters;
and (c) all payments due from any Group Member on account of employee health and welfare insurance
have been paid or accrued as a liability on the books of the relevant Group Member.



Section 5.13. ERISA. Set forth on Schedule 5.13 is a complete and accurate
list of all Plans. Neither a Reportable Event nor an “accumulated funding deficiency” (within the
meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year
period prior to the date on which this representation is made or deemed made with respect to any
Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the
PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of
the last annual valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued benefits by more than
$500,000 in the aggregate as to all such Plans. Neither Holdings, the Borrower nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has
resulted or could reasonably be expected to result in a material liability under ERISA, and neither
Holdings, the Borrower nor any Commonly Controlled Entity would become subject to any material
liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date most closely preceding the date on
which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization
or Insolvent.


 


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Section 5.14. Investment Company Act; Other Regulations. No Group Member is an
“investment company,” or a company “controlled” by an “investment company,” within the meaning of
the Investment Company Act of 1940. No Group Member is subject to regulation under any Requirement
of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness.



Section 5.15. Subsidiaries; Etc. As of the Closing Date, (a) Schedule 5.15
sets forth (i) each Subsidiary of Holdings and (ii) the full legal name and jurisdiction of
incorporation or other organization of (A) each Subsidiary of Holdings and the Borrower and (B)
each Drilling Program Partnership and Drilling Program and, as to each such Subsidiary and Drilling
Program Partnership and Drilling Program, the percentage of each class of Equity Interests owned by
any Group Member and (b) there are no outstanding subscriptions, options, warrants, calls, rights
or other agreements or commitments (other than stock or similar options granted to employees or
directors and directors’ qualifying shares) of any nature relating to any Equity Interests of any
Group Member.



Section 5.16. Environmental Matters. Except as, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect:



(a) the Properties owned, leased or operated by any Group Member do not contain, and have not
previously contained, any Hazardous Materials in amounts or concentrations or under circumstances
that constitute or constituted a violation of any Environmental Law or could give rise to any
Environmental Liability;



(b) no Group Member has received or is aware of any notice of violation, alleged violation,
non-compliance, Environmental Liability or potential Environmental Liability or compliance with
Environmental Laws with regard to any of the Properties or the business operated by any Group
Member (the “Business”), nor does Holdings or the Borrower have knowledge or reason to
believe that any such notice will be received or is being threatened;



(c) Hazardous Materials have not been transported or disposed of from the Properties in
violation of any Environmental Law, or in a manner or to a location that could give rise to any
Environmental Liability, nor have any Hazardous Materials been generated, treated, stored or
disposed of at, on or under any of the Properties in violation of, or in a manner that could give
rise to any Environmental Liability;



(d) no judicial proceeding or governmental or administrative action is pending or, to the
knowledge of Holdings and the Borrower, threatened, under any Environmental Law to which any Group
Member is or will be named as a party with respect to the Properties or the Business, nor are there
any consent decrees or other decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements outstanding under any Environmental Law with respect
to the Properties or the Business;



(e) there has been no release or threat of release of Hazardous Materials at or from the
Properties, or arising from or related to the operations of any Group Member in connection with the
Properties or otherwise in connection with the Business, in violation of or in amounts or in a
manner that could give rise to any Environmental Liability;



(f) the Properties and all operations at the Properties are in compliance, and have in the
last five (5) years been in compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any Environmental Law with respect
to the Properties or the Business; and



(g) no Group Member has assumed any Environmental Liability of any other Person.


 


45









 





Section 5.17. Accuracy of Information,Etc. No statement or information
contained in this Agreement, any other Loan Document, the Confidential Information Memorandum, any
Oil and Gas Property Title Information, any Oil and Gas Property Description Information, or any
other document, report, certificate or statement furnished by or on behalf of any Loan Party to the
Administrative Agent or the Lenders, or any of them, in connection with the transactions
contemplated by this Agreement or the other Loan Documents, contained as of the date such
statement, information, document or certificate was so furnished (or, in the case of the
Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a
material fact or omitted to state a material fact necessary
to make the statements contained herein or therein not misleading. The projections and pro
forma financial information contained in the materials referenced above are based upon good faith
estimates and assumptions believed by management of the Borrower to be reasonable at the time made,
it being recognized by the Lenders that such financial information as it relates to future events
is not to be viewed as fact and that actual results during the period or periods covered by such
financial information may differ from the projected results set forth therein by a material amount.
There is no fact known to any Loan Party that could reasonably be expected to have a Material
Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the
Confidential Information Memorandum or in any other documents, certificates and statements
furnished to the Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents. There are no statements or conclusions in any
Engineering Report, any Oil and Gas Property Certificate or any Farmout/Participation Property
Certificate delivered to the Administrative Agent which are based upon or include misleading
information or fail to take into account material information regarding the matters reported
therein (it being understood that projections concerning volumes attributable to Oil and Gas
Properties and production and cost estimates contained in each Engineering Report are necessarily
based upon professional opinions, estimates and projections and that Holdings, the Borrower and its
Restricted Subsidiaries do not warrant that such opinions, estimates and projections will
ultimately prove to have been accurate).



Section 5.18. Oil and Gas Properties.



(a) The Borrower and each of its Restricted Subsidiaries has good and defensible title to, or
a valid leasehold interest in, all of its respective Oil and Gas Properties, and none of such Oil
and Gas Properties is subject to any Lien except for Permitted Liens. All such Oil and Gas
Properties are valid, subsisting, and in full force and effect, and all rentals, royalties and
other amounts due and payable in respect thereof have been duly paid. After giving full effect to
Permitted Liens, the Borrower or the Restricted Subsidiary specified as the owner of any such Oil
and Gas Properties that are (i) Proved Properties owns the net interests in production attributable
to such Proved Properties as reflected in the Leases pertaining to such Proved Properties, and in
the most recently delivered Engineering Report, and (ii) Farmout Properties or Participation
Properties owns the rights, titles and interests attributable to such Farmout Properties and such
Participation Properties, as reflected in the most recently delivered Engineering Report and
Farmout/Participation Property Certificate. The ownership by the Borrower and its Restricted
Subsidiaries of its respective Oil and Gas Properties that are Proved Properties, Farmout
Properties or Participation Properties does not in any material respect obligate the Borrower or
any such Restricted Subsidiary to bear the costs and expenses relating to the maintenance,
development and operations of each of such Oil and Gas Properties in an amount in excess of the
working interest of such Oil and Gas Properties set forth in the most recently delivered
Engineering Report and Farmout/Participation Property Certificate that is not offset by a
corresponding proportionate increase in the Borrower’s or such Restricted Subsidiary’s net revenue
interest in such Oil and Gas Properties.



(b) All Oil and Gas Properties of the Borrower and its Restricted Subsidiaries (and all
properties unitized therewith) have been and are being drilled, developed, maintained and operated
in a good and workmanlike manner, in accordance with prudent industry standards, all applicable
Requirements of Law and the provisions of all applicable Leases, Drilling Program Agreements,
Farmout Agreements, Participation Agreements, Farmout Property Assignments, Participation Property
Assignments and other agreements and assignments creating or comprising any part of the Oil and Gas
Properties of the Borrower and any of its Restricted Subsidiaries, and in conformity with any
existing Permitted Liens. None of the Oil and Gas Properties of the Borrower or any of its
Restricted Subsidiaries is subject to having allowable production reduced below the full and
regular allowable (including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time). None of the wells comprising any part of
the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries (or properties unitized
therewith) are deviated from the vertical more than the maximum permitted by applicable
Requirements of Law, and such wells are bottomed under and are producing from, and the well bores
are wholly within, such Oil and Gas Properties (or in the case of wells located on properties
unitized therewith, such unitized properties) of the Borrower or any such Restricted Subsidiary.
All or substantially all of the wells comprising part of the Oil and Gas Properties of the Borrower
and any of its Restricted Subsidiaries are currently in production, except for temporary shut-ins.
Without limiting the generality of the first sentence of this Section 5.18(b), each well drilled in
respect of Proved Developed Producing Reserves of the Borrower and its Restricted Subsidiaries or
in which the Borrower has any right, title or interest pursuant to any Lease, Farmout Agreement,
Farmout Property Assignment, Participation Agreement or Participation Property Assignment (as
applicable) described in the Initial Engineering Report and each subsequent Engineering Report
delivered to the Administrative Agent and in the Initial Farmout/Participation Property Certificate
and each subsequent Farmout/Participation Property Certificate delivered to the Administrative
Agent (as applicable) (i) is capable of, and is presently, either producing Hydrocarbons in
commercially profitable quantities or in the process of being worked over or enhanced, and such
Borrower or



 


46









 






 the Restricted Subsidiary is currently receiving payments for its share of production, with no
funds in respect of any thereof being presently held in suspense pending delivery of appropriate
division orders, and (ii) has been drilled, bottomed, developed, maintained and operated in
compliance with all applicable Requirements of Law and all applicable Drilling Program Agreements,
Leases, Farmout Agreements, Farmout Property Assignments, Participation Agreements, Participation
Property Assignments, and other applicable agreements and assignments. The Borrower and each of
Restricted Subsidiary has obtained all approvals, consents, licenses and permits and all easements,
rights-of-way and other fee and leasehold interests necessary or required to be obtained from any
Governmental Authority or any other Person to own, drill, develop, maintain and operate its Oil and
Gas Properties, all of which are in full force and effect and none of the Borrower nor any of its
Restricted Subsidiaries has received notice from any Governmental Authority or other Person of any
violations in respect of any of the foregoing. All Pipeline Properties, wells, gas processing
plants, platforms and other material improvements, fixtures and equipment owned in whole or in part
by the Borrower or any of its Restricted Subsidiaries are being maintained in a state adequate to
conduct normal operations, and with respect to such of the foregoing which are operated by the
Borrower or any of its Restricted Subsidiaries, in a manner consistent with the Borrower’s or such
Restricted Subsidiary’s past practices and prudent industry standards and in compliance with all
applicable Requirements of Law.



(c) All Leases, Farmout Agreements, Farmout Property Assignments, Participation Agreements,
Participation Property Assignments, Drilling Program Agreements, deeds, and other agreements
forming any part of the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries to
which Proved Reserves are attributed in each Engineering Report and each Farmout/Participation
Property Certificate delivered to the Administrative Agent are valid, existing, binding,
enforceable and in full force and effect. All rents, royalties and other payments due and payable
under such Leases, Farmout Agreements, Farmout Property Assignments, Participation Agreements,
Participation Property Assignments, Drilling Program Agreements, deeds, and other agreements have
been properly and timely paid, except to the extent any such failure could not reasonably be
expected to cause the loss or forfeiture of (or in respect of) any such Proved Reserves. None of
the Borrower nor any of its Restricted Subsidiaries (i) is in default with respect to any of its
obligations (and no such Loan Party is aware of any default by any third party with respect to such
third party’s obligations) under any Leases, Farmout Agreements, Farmout Property Assignments,
Participation Agreements, Participation Property Assignments, Drilling Program Agreements, deeds,
and other agreements, or under any Permitted Liens, or otherwise attendant to the ownership or
operation of any part of the Oil and Gas Properties of the Borrower and its Restricted
Subsidiaries, where such default could materially adversely affect the ownership or operation of,
or any other right, title or interest in, any such Oil and Gas Properties to which any Proved
Reserves are attributable. None of the Borrower nor any of its Restricted Subsidiaries (i) is
currently accounting for any royalties, or overriding royalties or other payments out of
production, on a basis (other than delivery in kind) less favorable to such Loan Party than
proceeds received by such Loan Party (calculated at the well) from sale of production, or (ii) has
any liability (or alleged liability) to account for the same on any such less favorable basis.



(d) All Proved Properties, all Farmout Properties and all Participation Properties owned by
the Borrower and its Restricted Subsidiaries that, in the reasonable determination of the Borrower,
constitute interests in real property under applicable State law and are proposed for inclusion in
the Initial Borrowing Base are listed on Schedule 5.18(d).



(e) All Farmout Properties and all Participation Properties owned by the Borrower and its
Restricted Subsidiaries pursuant to Farmout Agreements, Farmout Assignments, Participation
Agreements and Participation Assignments that, in the reasonable determination of the Borrower,
constitute rights, titles and interests in personal property under applicable State law and are
proposed for inclusion in the Initial Borrowing Base are listed on Schedule 5.18(e). Each
Farmout Agreement (together with each Farmout Property Assignment creating any such Farmout
Properties) satisfy each of the criteria set forth in the definition of “Approved Farmout
Agreement” set forth in Article I of this Agreement. Each Participation Agreement and
Participation Property Assignment creating any such Participation Properties satisfy each of the
criteria set forth in the definition of “Approved Participation Agreement” set forth in Article I
of this Agreement. Each Approved Farmout Agreement and each Approved Participation Agreement has
been duly authorized, executed and delivered by all of the parties thereto, has not been amended,
supplemented or otherwise modified, is in full force and effect and is binding upon and enforceable
against all parties thereto in accordance with its terms, and there exists no default or
termination event under any Approved Farmout Agreement or any Approved Participation Agreement by
any party thereto.



(f) The Open-Access Pipeline Properties owned by the Borrower and its Restricted Subsidiaries
that are proposed for inclusion in the Borrowing Base (after giving effect to Sections 6.19(c) and
(d)) are listed on
Schedule 5.18(f). On the Closing Date, there are no Open-Access Pipeline Properties
owned by the Borrower or any of its Subsidiaries other than the NGAS Gathering Pipeline Properties.


 


47









 





Section 5.19. Security Documents.



(a) The Guarantee and Collateral Agreement is effective to create in favor of the
Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable
security interest in the Collateral described therein and proceeds thereof. In the case of the
Pledged Equity Interests described in the Guarantee and Collateral Agreement, when stock
certificates representing such Pledged Equity Interests are delivered to the Administrative Agent,
and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when
financing statements and other filings specified on Schedule 5.19(a) in appropriate form
are filed in the offices specified on Schedule 5.19(a), the Guarantee and Collateral
Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the
Obligations, in each case prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Equity Interests, Permitted Liens).



(b) Each Existing Oil and Gas Mortgage entered into prior to the Closing Date creates, and
each Additional Oil and Gas Mortgage shall, upon execution and delivery thereof, create, in favor
of the Administrative Agent for the benefit of the Secured Parties, a legal, valid and enforceable
Lien on the Mortgaged Properties described therein and all proceeds thereof and, when such Oil and
Gas Mortgage is filed or recorded (as applicable) in the offices specified on
Schedule 5.19(b), shall constitute a fully perfected Lien on and security interest in, all
right, title and interest of the Borrower and its Restricted Subsidiaries in the Mortgaged
Properties described therein and all proceeds thereof, as collateral security for the payment and
performance of the Obligations (as defined in the relevant Oil and Gas Mortgage), in each case
prior and superior in right to any other Person or Lien (except Permitted Liens having priority by
operation of applicable law).



(c) Each Pipeline Mortgage shall, upon execution and delivery thereof, create, in favor of the
Administrative Agent for the benefit of the Secured Parties, a legal, valid and enforceable Lien on
the Pipeline Properties described therein and all proceeds thereof and, when such Pipeline Mortgage
is filed or recorded (as applicable) in the offices specified in Schedule 5.19(c), shall
constitute a fully perfected Lien on and security interest in, all right, title and interest of the
Borrower and its Restricted Subsidiaries in the Mortgaged Properties described therein and all
proceeds thereof, as collateral security for the payment and performance of the Obligations (as
defined in the relevant Pipeline Mortgage), in each case prior and superior in right to any other
Person or Lien (except for Permitted Liens having priority by operation of applicable law).



(d) The Holdings Pledge Agreement is effective to create in favor of the Administrative Agent,
for the benefit of the Secured Parties, a legal, valid and enforceable security interest in the
Pledged Stock and the other Collateral (as defined in the Pledge Agreement). In the case of the
Pledged Stock, when stock certificates representing such Pledged Stock are delivered to the
Administrative Agent, and in the case of the other Collateral described in the Pledge Agreement,
when financing statements and other filings specified on Schedule 5.19(d) in appropriate
form are filed in the offices specified on Schedule 5.19(d), the Pledge Agreement shall
constitute a fully perfected Lien on, and security interest in, all right, title and interest of
Holdings in and to the Pledged Stock and the other Collateral, as security for the Obligations, in
each case, prior and superior in right to any other Person.



Section 5.20. Solvency. Each Loan Party is, and after giving effect to the incurrence
of all Indebtedness and obligations being incurred in connection herewith will be and will continue
to be, Solvent.



Section 5.21. Delivery of Certain Agreements and Documents. The Borrower has
delivered to the Administrative Agent complete and correct executed copies of each of (a) the NGAS
Securities Purchase Documents, including any amendments, supplements or modifications with respect
to any of the foregoing, (b) each Lease creating Proved Properties that has been requested by the
Administrative Agent, (c)(i) each Farmout Agreement and (ii) each related Farmout Property
Assignment creating Farmout Properties that are owned by the Borrower or any Restricted Subsidiary
that has been requested by the Administrative Agent, (d)(i) each Participation Agreement and (ii)
each Participation Property Assignment creating Participation Properties that are owned by the
Borrower or any Restricted Subsidiary that has been requested by the Administrative Agent, (e) each
Existing Oil and Gas Mortgage, (f) the NGAS Gathering Pipeline Acquisition Documents and (g) each
other agreement pursuant to which the Borrower or any Restricted Subsidiary has acquired any right,
title or interest in and to any Pipeline Properties that has been requested by the Administrative
Agent; provided, however, that with respect to each Participation Agreement, Participation
Property Assignment and NGAS Gathering Pipeline Acquisition Document, this Section 5.21 shall apply
only on and after the date which is thirty (30) days following the Closing Date.


 


48









 





Section 5.22. Material Contracts. Schedule 5.22 sets forth as of the Closing
Date a complete and accurate description of all Material Contracts (other than Leases described on
Schedule 5.18(d), Farmout Agreements and Farmout Assignments described on
Schedule 5.18(e) and Participation Agreements and Participation Assignments described on
Schedule 5.18(e)) of the Borrower and its Restricted Subsidiaries, showing the parties,
subject matter and term thereof. Each such Material Contract has been duly authorized, executed
and delivered by all of the parties thereto, has not been amended, supplemented or otherwise
modified, is in full force and effect and is binding upon and enforceable against all parties
thereto in accordance with its terms, and there exists no default or termination event under any
Material Contract by any party thereto.



Section 5.23. Insurance. Schedule 5.23 sets forth as of the Closing Date a
complete and accurate list of all policies of insurance maintained by the Borrower and its
Restricted Subsidiaries, showing with respect to each such policy the type of insurance, the
coverage amount, the carrier, and the duration of coverage. All premiums with respect to such
policies of insurance have been fully paid.



Section 5.24. Marketing Arrangements. Except as set forth in Schedule 5.24,
none of the Oil and Gas Properties of the Borrower or any Restricted Subsidiary is subject to any
contractual or other arrangement (a) whereby payment for production is or can be deferred for a
substantial period after the month in which such production is delivered (in the case of oil, not
in excess of sixty (60) days, and in the case of gas, not in excess of ninety (90) days) or
(b) whereby payments are made to any such Loan Party other than by check, draft, wire transfer or
other similar writings, instruments or communications for the immediate payment of money. Except
for production sales contracts, processing agreements, transportation agreements and other
agreements relating to the marketing of production that are listed in Schedule 5.24 in
connection with the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries to which
such contract or agreement relates: (i) none of the Oil and Gas Properties of any such Loan Party
are subject to any contractual or other arrangement for the sale, processing or transportation of
production (or otherwise related to the marketing of production) which cannot be cancelled on less
than one hundred twenty (120) days’ prior notice and (ii) all contractual or other arrangements for
the sale, processing or transportation of production (or otherwise related to the marketing of
production) are bona fide arm’s length transactions made on the best terms reasonably available
with third parties not affiliated with the Loan Parties. The Borrower and each of its Restricted
Subsidiaries are presently receiving a price for all production from (or attributable to) each of
its respective Oil and Gas Properties covered by a production sales contract or marketing contract
listed in Schedule 5.24 that is computed in accordance with the terms of such contract, and
no Loan Party is having deliveries of production from any such Oil and Gas Properties curtailed by
any purchaser or transporter of production substantially below such property’s delivery capacity,
except for curtailments caused by (x) an act or event of force majeure not reasonably within the
control of and not caused by the fault or negligence of any Loan Party and which by the exercise of
reasonable diligence such Loan Party is unable to prevent or overcome, and (y) routine maintenance
requirements in the ordinary course of business.



Section 5.25. Right to Receive Payment for Future Production.



(a) Except as set forth in Schedule 5.25, neither the Borrower nor any Restricted
Subsidiary, nor any of their respective predecessors in title, has received or is obligated in any
material respect by virtue of any prepayments (including payments for gas not taken pursuant to
“take or pay” or other similar arrangements) for any Hydrocarbons produced or to be produced from
any Oil and Gas Properties of the Borrower or any of its Restricted Subsidiaries after the date
hereof. Except as set forth in Schedule 5.25, none of the Oil and Gas Properties of the
Borrower or any of its Restricted Subsidiaries are subject to any “take or pay,” gas imbalances or
other similar arrangement (i) which can be satisfied in whole or in part by the production or
transportation of gas from other properties or (ii) as a result of which production from any such
Oil and Gas Properties may be required to be delivered to one or more third parties without payment
(or without full payment) therefor as a result of payments made, or other actions taken, with
respect to other properties.



(b) Except as set forth in Schedule 5.25, none of the Oil and Gas Properties of the
Borrower or any of its Restricted Subsidiaries with respect to which the Borrower or any of its
Restricted Subsidiaries, or any of its or their respective predecessors in title, has, prior to the
date hereof, taken more (“overproduced”), or less (“underproduced”), gas from the
lands covered thereby (or pooled or unitized therewith) than its ownership interest in such Oil and
Gas Properties would entitle it to take. Schedule 5.25 accurately reflects, for each well
or unit with respect to which any such imbalance is shown thereon to exist, (i) whether the
Borrower, any of its Restricted Subsidiaries or any of its or their respective Oil and Gas
Properties is overproduced or underproduced and (ii) the volumes (in cubic feet or British thermal
units) of such overproduction or underproduction and the effective date of such information. None
of the Oil and Gas Properties of the Borrower or any of its Restricted Subsidiaries is subject
at the present time to any regulatory refund obligation and, to the best of the Borrower’s
knowledge, no facts exist which might cause the same to be imposed.


 


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Section 5.26. Foreign Asset Control Regulations, Etc.



(a) Neither the making of the Credit Extensions hereunder nor the use of the proceeds thereof
will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto.



(b) No Group Member (i) is a Person described or designated in the Specially Designated
Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the
Anti-Terrorism Order or (ii) engages in any dealings or transactions with any such Person. Each
Group Member is in compliance, in all material respects, with the USA Patriot Act.



(c) No part of the proceeds from the Credit Extensions will be used, directly or indirectly,
for any payments to any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation of the United
States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act
applies to the Borrower.



ARTICLE VI




AFFIRMATIVE COVENANTS




Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to
any Lender, the Issuing Bank or the Administrative Agent hereunder, each of Holdings and the
Borrower shall, and shall cause each of the Restricted Subsidiaries to:



Section 6.01. Financial Statements. Furnish to the Administrative Agent and each
Lender:



(a) as soon as available, but in any event within ninety (90) days after the end of each
Fiscal Year of the Borrower, a copy of the audited consolidated and consolidating balance sheets of
the Holdings and its consolidated Subsidiaries as at the end of such year and the related audited
consolidated and consolidating statements of income and of cash flows for such year, setting forth
in each case in comparative form the figures for the previous year, reported on without a “going
concern” or like qualification or exception, or qualification arising out of the scope of the
audit, by Hall Kistler & Company, LLP or other independent certified public accountants of
nationally recognized standing; and



(b) as soon as available, but in any event not later than forty-five (45) days after the end
of each of the first three quarterly periods of each Fiscal Year of the Borrower, the unaudited
consolidated and consolidating balance sheets of the Holdings and its consolidated Subsidiaries as
at the end of such quarter and the related unaudited consolidated and consolidating statements of
income and of cash flows for such quarter and the portion of the Fiscal Year through the end of
such quarter, setting forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all material respects (subject to
normal year-end audit adjustments).



All such financial statements shall be complete and correct in all material respects and shall be
prepared in reasonable detail and in accordance with GAAP applied (except as approved by such
accountants or officer, as the case may be, and disclosed in reasonable detail therein)
consistently throughout the periods reflected therein and with prior periods.



 


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Section 6.02. Certificates; Other Information. Furnish to the Administrative Agent
and each Lender (or, in the case of clause (j), to the relevant Lender):



(a) concurrently with the delivery of the financial statements referred to in Section 6.01(a),
a certificate of the independent certified public accountants reporting on such financial
statements stating that in
making the examination necessary therefor no knowledge was obtained of any Default or Event of
Default, except as specified in such certificate;



(b) concurrently with the delivery of any financial statements pursuant to Section 6.01, (i) a
Compliance Certificate executed by a Responsible Officer (A) stating that each Loan Party during
such period has observed or performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Loan Documents to which it is a party to
be observed, performed or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in such certificate and (B)
containing all information and calculations necessary for determining compliance by each Loan Party
with the provisions of this Agreement referred to therein as of the last day of the Fiscal Quarter
or Fiscal Year of the Borrower, as the case may be; (ii) to the extent not previously disclosed to
the Administrative Agent in writing, a description of any change in the jurisdiction of
organization or name of any Loan Party and a list of all Intellectual Property and real property
(including any leasehold interests) acquired by any Loan Party since the date of the most recent
list delivered pursuant to this clause (ii) (or, in the case of the first such list so delivered,
since the Closing Date); and (iii) a true and complete list of all Hedge Agreements (including any
master agreements and each agreement or document evidencing any transaction entered into and then
existing thereunder) of the Borrower and each Restricted Subsidiary as of the last Business Day of
such Fiscal Quarter or Fiscal Year, which shall include a description of all material terms and
provisions thereof (including the type, term, effective date, termination date and notional amounts
or volumes), the net mark-to-market value thereof, any credit support providers and credit support
documents relating thereto, any guarantees provided or cash, Cash Equivalents or other margin
required or supplied under any credit support document or pursuant to the rules of any derivatives
exchange (or other self-regulatory organization governing or relating to such derivatives
exchange), the Approved Hedge Counterparty to each such Hedge Agreement, and the Credit Rating of
each such Approved Hedge Counterparty (or such Approved Hedge Counterparty’s guarantor or other
credit support provider);



(c) as soon as available, and in any event no later than forty-five (45) days after the end of
each Fiscal Year of the Borrower, a detailed consolidated budget of the Borrower and its
Subsidiaries, in form reasonably satisfactory to the Administrative Agent, for the following Fiscal
Year (the “Budget”), which Budget shall in each case be accompanied by a certificate of a
Responsible Officer stating that such Budget is based on reasonable estimates, information and
assumptions and that such Responsible Officer has no reason to believe that such Budget is
incorrect or misleading in any material respect;



(d) within forty-five (45) days after the end of each Fiscal Quarter of the Borrower, a
narrative discussion and analysis of the financial condition and results of operations of the
Borrower and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the
then current Fiscal Year to the end of such Fiscal Quarter, as compared to the portion of the
Budget covering such periods and to the comparable periods of the previous year;



(e) no later than ten (10) Business Days prior to the effectiveness thereof, copies of
substantially final drafts of any proposed amendment, supplement, waiver or other modification
under or pursuant to any NGAS Securities Purchase Documents or any Hedge Agreement;



(f) within five (5) days after the same are sent, copies of all financial statements, reports,
proxy statements, and material notices that any Group Member sends to any holder of any of its debt
securities (including pursuant to the NGAS Securities Purchase Documents) or Equity Interests and,
within five (5) days after the same are filed, copies of all financial statements, reports, proxy
statements and other materials that Holdings or the Borrower may make to, or file with, the SEC;



(g) as soon as available and in any event within ninety (90) days after the end of each Fiscal
Year of the Borrower, (a) a report in form and substance satisfactory to the Administrative Agent
outlining all insurance coverage maintained as of the date of such report by the Group Members
(specifying the type, amount, deductibles and carrier) and the duration of such coverage, and (b)
an insurance broker’s statement that all premiums then due and payable with respect to such
coverage have been paid and confirming compliance by the Group Members with Section 6.06(b) of this
Agreement and Section 5.02 (a) of the Guarantee and Collateral Agreement;



(h) as soon as available and in any event within five (5) Business Days after the receipt
thereof, copies of any “management letter” or similar letter or report received by Holdings or the
Borrower from its independent public accountants;


 


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(i) by November 1 of each year, an updated business plan for the Borrower and its Restricted
Subsidiaries, including proposed budgets and plans for the drilling, operation and development of
their Oil and Gas Properties, in form and substance reasonably satisfactory to the Administrative
Agent; and



(j) promptly, such additional financial and other information as any Lender may from time to
time reasonably request.



Section 6.03. Oil and Gas Reporting. Furnish to the Administrative Agent and each
Lender:



(a) as soon as available and in any event on or before each April 1 of each year, an
Independent Engineering Report dated effective as of January 1 for such year;



(b) as soon as available and in any event on or before October 1 of each year an Internal
Engineering Report dated effective as of the immediately preceding July 1;



(c) on April 1 and October 1 of each year, an executed and fully completed
Farmout/Participation Property Certificate dated as of such April 1 date or such October 1 date (as
applicable);



(d) no later than ten (10) Business Days prior to the effectiveness thereof, copies of
substantially final drafts of any proposed amendment, supplement, waiver or other modification
under or pursuant to any Lease, Farmout Agreement, Farmout Property Assignment, Participation
Agreement or any Participation Agreement Assignment;



(e) such other data and information as may be reasonably requested by the Administrative Agent
or any Lender with respect to any of the Oil and Gas Properties of the Borrower and its Restricted
Subsidiaries, including all Borrowing Base Properties;



(f) together with the delivery of each Engineering Report, an executed and fully completed Oil
and Gas Property Certificate (with all annexes and schedules thereto), dated as of the date of such
Engineering Report;



(g) with the delivery of each Engineering Report and otherwise at any time upon the request of
the Administrative Agent, a variance analysis with projection of drilling, production, sales and
revenues for the succeeding twelve (12) month period for the Oil and Gas Properties of the Borrower
and its Restricted Subsidiaries; and



(h) as soon as available and in any event within sixty (60) days after the end of each Fiscal
Quarter, commencing with the fiscal quarter ending March 31, 2008, a report certified by a
Responsible Officer of the Borrower in form and substance satisfactory to the Administrative Agent
prepared by the Borrower covering each of the Mortgaged Properties of the Borrower and its
Restricted Subsidiaries and detailing on a quarterly basis (i) the production, revenue, and price
information and associated operating expenses for each such quarter, (ii) any changes to any
producing reservoir, production equipment, or producing well during each such quarter, which could
have a Material Adverse Effect and (iii) any sales of the Borrower’s or any of its Restricted
Subsidiaries’ Oil and Gas Properties during each such Fiscal Quarter.



Section 6.04. Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent or a default occurs thereunder, as the case may
be, all its Indebtedness and other obligations of whatever nature, including Tax liabilities,
except where (a) the amount or validity thereof is currently being contested in good faith by
appropriate proceedings, (b) reserves in conformity with GAAP with respect thereto have been
provided on the books of the Group Members, (c) such contest effectively suspends collection of the
contested obligation and enforcement of any Lien securing such obligation, and (d) the failure to
make payment pending the resolution of such contest could not reasonably be expected to have a
Material Adverse Effect.



 


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 Section 6.05. Maintenance of Existence; Compliance.



(a) (i) Preserve, renew and keep in full force and effect its organizational existence and
(ii) without limiting the Borrower’s obligations under Section 6.13, take all reasonable action to
maintain in full force and effect all rights, privileges, permits, licenses and franchises
necessary or desirable in the normal conduct of its business, except, in each case, as otherwise
permitted by Section 7.04 and except, in the case of clause (ii) above, to the extent that failure
to do so could not reasonably be expected to have a Material Adverse Effect; and



(b) comply with all Contractual Obligations and Requirements of Law, except to the extent that
failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.



Section 6.06. Maintenance of Property; Insurance; Bonding.



(a) Keep all Property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted;



(b) Maintain, with financially sound and reputable insurance companies, insurance on all of
its Property in at least such amounts and against at least such risks (but including in any event
public liability, product liability and business interruption) as are customarily maintained by
companies engaged in the same or a similar business operating in the same or similar locations; and



(c) Maintain all bonds and letters of credit in lieu of bonds that it is required to maintain
(by applicable Requirements of Law, Lease terms, or consistent with prudent industry practices) in
order to carry out development of and production operations on its Oil and Gas Properties.



Section 6.07. Inspection of Property; Books and Records; Discussions.



(a) Keep proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and



(b) Permit representatives of the Administrative Agent or any Lender to visit and inspect any
of its properties and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Group Members with officers and employees of
the Group Members and with their independent certified public accountants.



Section 6.08. Notices. Promptly give notice to the Administrative Agent and each
Lender of:



(a) the occurrence of any Default or Event of Default;



(b) any (i) default or event of default under any Contractual Obligation of any Group Member
or (ii) litigation, investigation or proceeding that may exist at any time between any Group Member
and any Governmental Authority, that in either case, if not cured or if adversely determined, as
the case may be, could reasonably be expected to have a Material Adverse Effect;



(c) the filing or commencement of any litigation, proceeding or other claim against or
affecting any Group Member (i) in which the amount involved is $500,000 or more and not covered by
insurance, (ii) in which injunctive or similar relief is sought or (iii) which relates to any Loan
Document;



(d) any assertion of any Environmental Liability by any Person or any other claim under any
Environmental Law by any Person against, or with respect to any activities or properties of,
Holdings, the Borrower or any of its Subsidiaries in which the amount of the Environmental
Liability or claim is $500,000 or more;



(e) the following events, as soon as possible and in any event within thirty (30) days after
the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any
other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer
Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any
Plan;



(f) any material change in accounting policies or financial reporting practices by any Group
Member;



(g) the occurrence of any material breach, default, event of default or termination event
under, or repudiation or termination of any Material Contract;


 


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(h) the occurrence of any event or circumstance which causes any (i) Approved Farmout
Agreement to no longer satisfy one or more of the criteria set forth in the definition of “Approved
Farmout Agreement” contained in Article I of this Agreement or (ii) Approved Participation
Agreement to no longer satisfy one or more of the criteria set forth in the definition of “Approved
Participation Agreement” contained in Article I of this Agreement; and



(i) any other development or event that has had or could reasonably be expected to have a
Material Adverse Effect.



Each notice pursuant to this Section 6.08 shall be accompanied by a statement of a Responsible
Officer setting forth details of the occurrence referred to therein and stating what action the
relevant Group Member proposes to take with respect thereto.



Section 6.09. Environmental Laws.



(a) Comply with, and ensure compliance by all tenants, subtenants, and any Persons using,
developing, drilling or operating any of their respective Oil and Gas Properties, if any, with all
applicable Environmental Laws, and obtain and comply with and maintain, and ensure that all tenants
and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws.



(b) Conduct and complete all investigations, studies, sampling and testing, and all remedial,
removal and other actions required under Environmental Laws and promptly comply with all lawful
orders and directives of all Governmental Authorities regarding Environmental Laws.



Section 6.10. Collateral; Restricted Subsidiaries; Oil and Gas Properties.



(a) With respect to any Property acquired by the Borrower or any of its Restricted
Subsidiaries (other than (x) any property described in subsections (b), (c), (d), (e) or (f) below
and (y) any property subject to a Lien expressly permitted by Section 7.03(f)) as to which the
Administrative Agent, for the benefit of the Secured Parties, does not have a perfected Lien,
promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and
Collateral Agreement, or such other documents or agreements as the Administrative Agent may require
to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first
priority security interest in and Lien on such property and (ii) take all other actions required by
the Administrative Agent to grant to the Administrative Agent, for the benefit of the Secured
Parties, a perfected first priority security interest in such Property, including the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent.



(b) With respect to any fee interest in any real Property (other than Oil and Gas Properties)
having a value (together with improvements thereof) of at least $100,000 acquired after the Closing
Date by the Borrower or any of its Restricted Subsidiaries (other than any such real Property
subject to a Lien expressly permitted by Section 7.03(f)), promptly (i) execute and deliver a first
priority Mortgage, in favor of the Administrative Agent for the benefit of the Secured Parties,
covering such real Property, (ii) if requested by the Administrative Agent, provide the Secured
Parties with (A) title and extended coverage insurance covering such real Property in an amount at
least equal to the purchase price of such real Property (or such other amount as shall be specified
by the Administrative Agent), together with such endorsements as the Administrative Agent may
require, (B) a current ALTA survey of such real Property, together with a surveyor’s certificate,
(C) an environmental site assessment report for such real property, (D) an appraisal of such real
Property, and (E) such consents, waivers, and estoppels, and intercreditor, attornment and
subordination agreements as may be required by the Administrative Agent in connection with such
Mortgage, each of the foregoing to be in scope, form and substance satisfactory to the
Administrative Agent, and (iii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above, which opinions shall
be in form and substance, and from counsel, satisfactory to the Administrative Agent.


 


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(c) With respect to any Restricted Subsidiary created or acquired after the Closing Date by
the Borrower or any other Restricted Subsidiary (which, for the purposes of this paragraph (c),
shall include any Unrestricted Subsidiary that becomes or is designated by the Borrower as a
Restricted Subsidiary), promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement and take such other action as the
Administrative Agent may require to grant to the Administrative Agent, for the benefit
of the Secured Parties, a perfected first priority security interest in the Equity Interests
of such new Restricted Subsidiary, (ii) deliver to the Administrative Agent the certificates
representing such Equity Interests, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of the relevant Group Member, (iii) cause such new
Restricted Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to take
all actions required by the Administrative Agent to grant to the Administrative Agent, for the
benefit of the Secured Parties, a perfected first priority security interest in the Collateral
described in the Guarantee and Collateral Agreement with respect to such new Restricted Subsidiary,
including the filing of Uniform Commercial Code financing statements in such jurisdictions as may
be required by the Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent and (C) to deliver to the Administrative Agent a certificate of such
Restricted Subsidiary, substantially in the form of Exhibit B, with appropriate insertions
and attachments, and (iv) if requested by the Administrative Agent, deliver to the Administrative
Agent legal opinions relating to the matters described above, which opinions shall be in form and
substance, and from counsel, satisfactory to the Administrative Agent.



(d) With respect to any Proved Properties created or acquired by the Borrower or any of its
Restricted Subsidiaries after the Closing Date (or owned by any Restricted Subsidiary which is
created or acquired by a Loan Party after the Closing Date) promptly notify the Administrative
Agent thereof and, within sixty (60) days after such creation or acquisition (or, if such Proved
Properties are created or acquired in the ordinary course of business, concurrently with the
delivery by the Borrower of the immediately succeeding Engineering Report and Oil and Gas Property
Certificate) (i) execute and deliver a New Oil and Gas Mortgage or a Supplemental Oil and Gas
Mortgage (as applicable), in favor of the Administrative Agent for the benefit of the Secured
Parties, creating an Acceptable Lien on such Proved Properties, (ii) deliver to the Administrative
Agent all Oil and Gas Property Title Information and all Oil and Gas Property Description
Information necessary or otherwise reasonably requested by the Administrative Agent with respect to
such Proved Properties and to otherwise ensure that the Administrative Agent may obtain an
Acceptable Lien on such Proved Properties and (iii) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the matters described above, which
opinions shall be in form and substance, and from counsel, satisfactory to the Administrative
Agent.



(e) With respect to any Farmout Properties and any Participation Properties created or
acquired by the Borrower or any of its Restricted Subsidiaries after the Closing Date (or owned by
any Restricted Subsidiary which is created or acquired by a Loan Party after the Closing Date),
promptly notify the Administrative Agent thereof and, prior to or concurrently with the delivery by
the Borrower of the immediately succeeding Engineering Report (i) deliver an executed copy of the
Farmout Property Assignment or the Participation Property Assignment (as applicable) creating and
evidencing such Farmout Properties or such Participation Properties (as applicable), together with
a certificate, executed by a Responsible Officer of the Borrower, specifying whether the Borrower’s
or such Restricted Subsidiary’s rights, titles and interests in and to such Farmout Properties or
such Participation Properties (as applicable) constitute, in the reasonable judgment of the
Borrower or such Restricted Subsidiary after due inquiry, interests in real Property or interests
in personal Property under applicable state law, (ii) execute and deliver a New Oil and Gas
Mortgage or a Supplemental Oil and Gas Mortgage (as applicable) in favor of the Administrative
Agent, for the benefit of the Secured Parties, creating an Acceptable Lien on such Farmout
Properties or such Participation Properties (as applicable), (iii) deliver to the Administrative
Agent all Oil and Gas Property Title Information and all Oil and Gas Property Description
Information necessary or otherwise reasonably requested by the Administrative Agent with respect to
such Farmout Properties or such Participation Properties (as applicable) and to otherwise ensure
that the Administrative Agent may obtain an Acceptable Lien on such Farmout Properties or such
Participation Properties (as applicable) and (iv) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described above, which opinions
shall be in form and substance, and from counsel, satisfactory to the Administrative Agent.



(f) With respect to any Open-Access Pipeline Properties created, constructed or acquired by
the Borrower or any of its Restricted Subsidiaries after the Post-Closing Date (or owned by any
Restricted Subsidiary which is created or acquired by a Loan Party after the Closing Date),
promptly notify the Administrative Agent thereof and, within sixty (60) days after such creation,
construction, or acquisition (or, if any such Pipeline Properties are created or constructed on, to
or in respect of any existing Pipeline Properties in the ordinary course of business, concurrently
with the delivery by the Borrower of the immediately succeeding Engineering Report), (i) deliver an
executed copy of any agreement governing or evidencing the creation, construction or acquisition of
such Pipeline Properties, (ii) execute and deliver a first priority Pipeline Mortgage or a
Supplemental Pipeline Mortgage (as applicable) in favor of the Administrative Agent, for the
benefit of the Secured Parties, creating an Acceptable Lien on such Open-Access Pipeline
Properties, (iii) deliver to the Administrative Agent all Oil and Gas Property Title Information
and all Oil and Gas Property Description Information necessary or otherwise reasonably requested by
the Administrative Agent with respect to such Open-Access Pipeline Properties and to otherwise
ensure that the
Administrative Agent has an Acceptable Lien on such Open-Access Pipeline Properties, and (iv)
if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and substance, and from
counsel, satisfactory to the Administrative Agent.


 


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Section 6.11. Additional Oil and Gas Property Title and Description Information.



(a) Provide (or cause to be provided) to the Administrative Agent and its counsel (i) all Oil
and Gas Property Title Information and all Oil and Gas Property Description Information from time
to time reasonably requested by the Administrative Agent or any Lender with respect to any Oil and
Gas Properties of the Borrower and its Restricted Subsidiaries which has not been previously
delivered to the Administrative Agent, and (ii) all UCC and other lien searches and title searches
requested by the Administrative Agent covering any such Oil and Gas Properties in the appropriate
records of the states and counties in which such Oil and Gas Properties are located, setting forth
the status of title to and any existing Liens on such Oil and Gas Properties. All such Oil and Gas
Title Information and Lien searches shall be satisfactory to the Administrative Agent and the
Lenders and shall reveal no defects in title, or Liens or other encumbrances, on or with respect to
such Oil and Gas Properties except for Permitted Liens.



(b) Deliver to the Administrative Agent and its counsel concurrently with each
Farmout/Participation Property Certificate:



(i) without limiting clause (a) above, with respect to any Proved Properties, Farmout
Properties, Participation Properties, and Open-Access Pipeline Properties and other Oil and Gas
Properties (or any rights, title or interests therein) acquired by, or otherwise assigned,
transferred or conveyed to, or drilled, developed or operated by, the Borrower or any of its
Restricted Subsidiaries after the Closing Date that are included or are expressly requested by the
Borrower to be included in the Borrowing Base (collectively, “After-Acquired Oil and Gas
Properties”), (A) copies of (or, in the discretion of the Administrative Agent, access of the
Administrative Agent and its counsel and engineers to) any and all Oil and Gas Title Information
covering or relating to such After-Acquired Oil and Gas Properties and received or obtained by or
provided to the Borrower or any of its Restricted Subsidiaries in connection with such acquisition,
assignment, transfer, conveyance, drilling, development or operation (it being further understood
and agreed that if the Borrower or any of its Restricted Subsidiaries is entitled to receive or
will receive any title opinions covering or relating to any such After-Acquired Oil and Gas
Properties, the Borrower or such Restricted Subsidiary shall cause the Administrative Agent and the
Secured Parties to be named as addressees of such title opinions), and (B) without limiting clause
(b)(ii)(A) above, if the Borrower or the Administrative Agent determines that any such
After-Acquired Oil and Gas Properties (1) has an aggregate value in excess of 10% of the aggregate
value of all Oil and Gas Properties of the Borrower and its Restricted Subsidiaries included in the
Borrowing Base (as determined by the Administrative Agent and the Lenders in connection with
determination of the Initial Borrowing Base or the most recently redetermined Borrowing Base
immediately preceding the date of such acquisition, assignment, transfer or conveyance, or date of
commencement of such drilling (as applicable)), or (2) is located in a Non-Appalachian State, the
Borrower or relevant Restricted Subsidiary shall provide (or cause to be provided) title opinions
naming the Administrative Agent and the Lenders as addressees thereof and other Oil and Gas Title
Information covering or relating to such After-Acquired Oil and Gas Properties, in each case as
requested by and in form and substance satisfactory to the Administrative Agent; and



(ii) such other information as the Administrative Agent and the Lenders shall from time to
time request to identify and verify the status of title of and to adequately set forth the legal
description of any After-Acquired Oil and Gas Properties or any other Oil and Gas Properties of the
Borrower and its Restricted Subsidiaries included or to be included in the Borrowing Base and the
validity, perfection and priority of the Liens created in favor of the Administrative Agent (for
the benefit of the Secured Parties) on the Mortgaged Properties and such other related matters and
information pertaining to any of the Oil and Gas Properties of the Borrower and its Restricted
Subsidiaries included or to be included in the Borrowing Base as the Administrative Agent shall
reasonably request.



(c) Deliver, or cause to be delivered, to the Administrative Agent from time to time upon the
request of the Administrative Agent, at the sole cost and expense of the Borrower, (i) such Farmout
Agreement Consents and such Participation Agreement Consents requested or required by the
Administrative Agent, and (ii) such legal opinions as the Administrative Agent may require, from
counsel satisfactory to the Administrative Agent, with respect to any and all Mortgages and other
Security Documents executed and delivered by the Borrower or any Restricted Subsidiary after the
Closing Date.


 


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Section 6.12. Preparation of Environmental Reports. At the request of the
Administrative Agent from time to time, provide to the Administrative Agent and the Lenders within
sixty (60) days after such request, at the expense of the Borrower, an environmental site
assessment report for any of its or its Restricted Subsidiaries’ Properties described in such
request, prepared by an environmental consulting firm acceptable to the Administrative Agent,
indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance,
removal or remedial action in connection with any Hazardous Materials on such properties. Without
limiting the generality of the foregoing, if the Administrative Agent determines at any time that a
material risk exists that any such report will not be provided within the time referred to above,
the Administrative Agent may retain an environmental consulting firm to prepare such report at the
expense of the Borrower, and each of Holdings and the Borrower hereby grants and agrees to cause
any Subsidiary that owns any Property described in such request to grant at the time of such
request to the Administrative Agent, the Lenders, such firm and any agents or representatives
thereof an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto their
respective Properties to undertake such an assessment.



Section 6.13. Oil and Gas Properties.



(a) Preserve, maintain, protect and keep in good repair, working order, condition and
efficiency all of its respective Oil and Gas Properties and other material Properties and make all
necessary repairs, renewals, replacements and improvements thereto so that at all times the state
and condition of all such Oil and Gas Properties and other material Properties will be fully
preserved and maintained.



(b) Promptly (i) pay and discharge, or cause to be paid and discharged, all rentals,
royalties, expenses, Taxes and Indebtedness accruing under any Leases, Farmout Agreements, Farmout
Property Assignments, Participation Agreements, Participation Property Assignments, Drilling
Program Agreements and other agreements and assignments affecting or pertaining to or creating its
rights, title or interests in and to any Oil and Gas Properties, and (ii) do all other things
necessary to keep unimpaired its rights with respect thereto and prevent any forfeiture thereof or
default thereunder.



(c) Promptly perform or exercise reasonable and customary efforts to cause to be performed, in
accordance with prudent industry standards, the obligations required by each and all of the Leases,
Farmout Agreement, Farmout Property Assignments, Participation Agreements, Participation Property
Assignments, Drilling Program Agreements and other agreements and assignments applicable to or
affecting its interests in its respective Oil and Gas Properties or the production and sale of
Hydrocarbons therefrom.



(d) Maintain in full force and effect all permissions, licenses, easements, rights-of-way and
leasehold and fee interests, and all governmental approvals, authorizations, consents and permits
necessary for the ownership, drilling, development, maintenance and operation of its respective Oil
and Gas Properties.



(e) Operate its respective Oil and Gas Properties (or cause any Oil and Gas Properties in
which it has any right, title or interest to be operated) on a continuous basis in a careful and
efficient manner in accordance with customary and prudent industry practices and in compliance with
all applicable Contractual Obligations and all applicable Requirements of Law.



(f) To the extent any of its respective rights, title or interests in and to any Oil and Gas
Properties arise from or in respect of any Oil and Gas Properties that are owned or operated by
Persons other than any Loan Party, it shall use commercially reasonable efforts to cause any such
owner or operator of such Oil and Gas Properties to comply with this Section 6.13 and shall seek to
enforce such owner’s or operator’s Contractual Obligations and Requirements of Law applicable to
such owner or operator to maintain, drill, develop, maintain and operate such Oil and Gas
Properties (subject to applicable operating agreements).



Section 6.14. Deposit Accounts. Cause all production proceeds attributable to the
Mortgaged Properties and all other revenues and income of the Borrower and its Restricted
Subsidiaries (other than production proceeds held in a Restricted Account) to be paid and deposited
into the CBT Controlled Account or other deposit accounts of such Loan Party maintained with
financial institutions acceptable to the Administrative Agent that are subject to control
agreements in favor of the Administrative Agent, for the benefit of the Secured Parties, each in
form and substance satisfactory to the Administrative Agent.


 


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Section 6.15. Material Contracts. Perform and observe all the terms and provisions of
each Material Contract to be performed or observed by it, maintain each such Material Contract in
full force and effect, enforce
each such Material Contract in accordance with its terms, take all such action to such end as
may be from time to time requested by the Administrative Agent and, upon request of the
Administrative Agent, make to each other party to each such Material Contract such demands and
requests for information and reports or for action as any Group Member is entitled to make under
such Material Contract, except where the failure to do so, either individually or in the aggregate,
could not be reasonably expected to have a Material Adverse Effect.



Section 6.16. Protection Against Draining of Hydrocarbons. To the extent that the Oil
and Gas Properties of the Borrower or any of its Restricted Subsidiaries (a) are operated by the
Borrower or any of its Restricted Subsidiaries, act as a reasonably prudent operator in an effort
to identify and prevent the occurrence of any draining of Hydrocarbons from such Oil and Gas
Properties and (b) are not operated by the Borrower or any of its Restricted Subsidiaries, utilize
its property and contractual rights as a reasonably prudent owner or operator in an effort to
identify and prevent the occurrence of any draining of Hydrocarbons from such Oil and Gas
Properties.



Section 6.17. Further Assurances; Cure of Title Defects.



(a) Promptly upon request by the Administrative Agent, or any Lender through the
Administrative Agent, correct any defect or error that may be discovered in any Loan Document or in
the execution, acknowledgment, filing or recordation thereof.



(b) Promptly upon request by the Administrative Agent, or any Lender through the
Administrative Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register
and re-register any and all such further acts, deeds, conveyances, pledge agreements, mortgages,
deeds of trust, trust deeds, assignments, financing statements and continuations thereof,
termination statements, notices of assignment, transfers, certificates, assurances and other
instruments as the Administrative Agent, or any Lender through the Administrative Agent, may
require from time to time in order to (i) carry out more effectively the purposes of the Loan
Documents, (ii) to the fullest extent permitted by applicable law, subject any Loan Party’s or any
of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended
to be covered by any of the Security Documents, (iii) perfect and maintain the validity,
effectiveness and priority of any of the Security Documents and any of the Liens intended to be
created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm
more effectively unto the Administrative Agent or any Lender the rights granted or now or hereafter
intended to be granted to the Administrative Agent or any Lender under any Loan Document or under
any other instrument executed in connection with any Loan Document to which any Loan Party or any
of its Subsidiaries is or is to be a party.



(c) Within thirty (30) days after a request by the Administrative Agent or the Required
Lenders to satisfy and discharge any Liens on any Oil and Gas Properties (other than Permitted
Liens) or to cure any title defects or exceptions with respect to any of the Mortgaged Properties
(other than Permitted Liens), (i) satisfy and discharge such Liens or cure such title defects or
exceptions, or (ii) grant to the Administrative Agent an Acceptable Lien in substitute Oil and Gas
Properties with no title defects or exceptions (except for Permitted Liens) of an equivalent value
and deliver to the Administrative Agent satisfactory title evidence (including supplemental or new
title opinions meeting the foregoing requirements) in form and substance acceptable to the
Administrative Agent as to the Borrower’s and its Restricted Subsidiaries’ ownership of such Oil
and Gas Properties and the Administrative Agent’s Liens and security interests therein.



Section 6.18. Transfer Letters. Deliver to the Administrative Agent within sixty (60)
days following the Closing Date and from time to time thereafter, Transfer letters duly executed by
the Borrower and its Restricted Subsidiaries, as appropriate, with respect to all Oil and Gas
Properties included in the Borrowing Base.



 


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Section 6.19. Additional Post-Closing Items.



(a) Deliver to the Administrative Agent, on or before the date which is thirty (30) days
following the Closing Date, (i) new Oil and Gas Mortgages covering the Proved Properties, Farmout
Properties and Participation Properties proposed to be included in the Initial Borrowing Base, duly
executed and delivered by the Borrower and each Restricted Subsidiary that owns such Properties, as
applicable, and duly notarized and acknowledged, (ii) the legal opinions of Bowles Rice McDavid
Graff & Love LLP, special oil and gas property counsel to the Administrative Agent, or other local
oil and gas counsel acceptable to the Administrative Agent, covering matters relating to the Oil
and Gas Mortgages described in Section 6.19(a)(i), in form and substance satisfactory to the
Administrative Agent (iii) the legal opinions delivered in accordance with Sections 4.01(m)(i) and
4.01(m)(ii) of this Agreement, updated to include matters relating to the Oil and Gas Mortgages
described in Section 6.19(a)(i), in form and substance satisfactory to the Administrative Agent.


(b) Deliver to the Administrative Agent, on or before the date which is thirty (30) days
following the Closing Date, (i) true, correct and complete executed and recorded (if applicable)
copies of each Existing Participation Agreement, and all amendments thereto through and including
such date, (ii) true, correct and complete executed and recorded (if applicable) copies of each
Existing Participation Property Assignment, and all amendments thereto through and including such
date, and (iii) true, correct and complete executed and recorded (if applicable) copies of each
NGAS Gathering Property Acquisition Document, and all amendments thereto through and including such
date.



(c) Deliver to the Administrative Agent (i) on or before the date which is ninety (90) days
following the Closing Date (the “Post-Closing Date”) (which date may be extended, if such
extension is requested by the Borrower, for an additional thirty (30) days by the Administrative
Agent in its sole discretion), all Oil and Gas Property Description Information and all Oil and Gas
Property Title Information reasonably requested by the Administrative Agent or any Lender, in each
case pertaining to all Proved Properties, all Farmout Properties and all Participation Properties
described in Section 6.19(d) and all Open-Access Pipeline Properties described in Section 6.19(e)
then owned by the Borrower or any of its Restricted Subsidiaries and (ii) thereafter from time to
time all Oil and Gas Property Description Information and all Oil and Gas Property Title
Information pertaining to all After-Acquired Oil and Gas Properties of the Borrower and its
Restricted Subsidiaries, in each case to the extent reasonably requested by the Administrative
Agent.



(d) Deliver to the Administrative Agent, on or before the Post-Closing Date, Additional Oil
and Gas Mortgages and Supplemental Oil and Gas Mortgages (as applicable) duly executed,
acknowledged and delivered by the appropriate Loan Party or Loan Parties, and in form suitable for
filing or recording in all applicable filing or recording offices, that create an Acceptable Lien
in all Proved Properties, all Farmout Properties (other than Farmout Properties constituting
interests in Proved Undeveloped Reserves) and all Participation Properties (other than
Participation Properties constituting interests in Proved Undeveloped Reserves) that are not
included in the Borrowing Base. The Borrower shall pay all stamp, intangibles and recording taxes
and fees associated with the filing and recordation of all such Mortgages.



(e) Deliver to the Administrative Agent, on or before the Post-Closing Date, Pipeline
Mortgages duly executed, acknowledged and delivered by the appropriate Loan Party or Loan Parties,
and in form suitable for filing or recording in all applicable filing or recording offices, that
create an Acceptable Lien in all Open-Access Pipeline Properties then owned by the Borrower or any
of its Restricted Subsidiaries. The Borrower shall pay all stamp, intangibles and recording taxes
and fees associated with the filing and recordation of all such Mortgages.



(f) Cause to be delivered to the Administrative Agent, on or before the Post-Closing Date, (i)
the legal opinions of Bowles Rice McDavid Graff & Love LLP, special oil and gas property counsel to
the Administrative Agent, or other local oil and gas counsel acceptable to the Administrative
Agent, covering the matters relating to the Mortgages described in Sections 6.19(d) and (e) as may
be required by the Administrative Agent or any Lender, substantially in the forms of Exhibit F-4
and Exhibit F-5, and (ii) the legal opinions delivered in accordance with Sections 4.01(m)(i) and
4.01(m)(ii) of this Agreement, updated to include matters relating to the Oil and Gas Pipeline
Mortgages described in Section 6.19(e), in form and substance satisfactory to the Administrative
Agent.



 


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ARTICLE VII




NEGATIVE COVENANTS




Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to
any Lender, the Issuing Bank or the Administrative Agent hereunder, (x) Holdings shall not with
respect to Sections 7.01, 7.08, 7.11, 7.12, 7.13 and 7.14 and (y) the Borrower shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly:



Section 7.01. Financial Condition Covenants.



(a) Consolidated Leverage Ratio. Permit the ratio, determined as of the end of any
Fiscal Quarter of the Borrower, of (i) Consolidated Funded Indebtedness as of the end of such
Fiscal Quarter, to (ii) Consolidated EBITDA for the trailing period of four (4) Fiscal Quarters of
the Borrower ending with any Fiscal Quarter set forth below (the “Maximum Consolidated Leverage
Ratio”) to exceed the ratio set forth below opposite such Fiscal Quarter:





	 	 	 	 	 
	 	 	Maximum Consolidated	 
	Fiscal Quarter	 	Leverage Ratio	 
	Ending December 31, 2007
	 	 	4.25 to 1.00	 
	Ending March 31, 2008
	 	 	4.00 to 1.00	 
	Ending June 30, 2008
	 	 	3.75 to 1.00	 
	Ending September 30, 2008 and thereafter
	 	 	3.50 to 1.00	 






(b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage
Ratio for any period of four consecutive Fiscal Quarters of the Borrower ending on the last day of
any Fiscal Quarter to be less than 2.50 to 1.00.



(c) Consolidated Current Ratio. Permit the ratio of Consolidated Current Assets to
Consolidated Current Liabilities as of the end of any Fiscal Quarter of the Borrower to be less
than 1.00 to 1.00.



Section 7.02. Indebtedness. Create, issue, incur, assume, become liable in respect of
or suffer to exist any Indebtedness, except:



(a) Indebtedness of any Loan Party pursuant to any Loan Document;



(b) Indebtedness of (i) the Borrower to any Restricted Subsidiary or (ii) of any Restricted
Subsidiary to the Borrower or any other Restricted Subsidiary;



(c) Guarantee Obligations incurred by the Borrower or any Restricted Subsidiary in respect of
any Indebtedness of the Borrower or any Restricted Subsidiary otherwise permitted by this
Section 7.02;



(d) Indebtedness outstanding on the date hereof and listed on Schedule 7.02(d) and any
refinancings, refundings, renewals or extensions thereof (without increasing, or shortening the
maturity of, the principal amount thereof);



(e) Indebtedness incurred (i) to finance the acquisition, construction or improvement of fixed
or capital assets (including, without limitation, Capital Lease Obligations) or (ii) pursuant to
the CB&T Note, in any case which is secured by Liens permitted by Section 7.03(f), provided
that the aggregate principal amount of all Indebtedness described in this Section 7.02(e) shall not
at any time exceed $5,000,000;



(f) Indebtedness under Hedge Agreements permitted under Section 7.15;



(g) Indebtedness arising under surety bonds and related obligations required by applicable
Requirements of Law in connection with the operation of its Oil and Gas Properties; and



(h) additional unsecured Indebtedness of the Borrower or any of its Restricted Subsidiaries in
an aggregate principal amount (for the Borrower and all Restricted Subsidiaries) which does not at
any time exceed $500,000.



Section 7.03. Liens. Create, incur, assume or permit to exist any Lien upon any
property or asset, whether now owned or hereafter acquired, except for (collectively,
“Permitted Liens”):



(a) Liens for taxes not yet due or that are being contested in good faith by appropriate
proceedings, provided that adequate reserves with respect thereto are maintained on the
books of the Borrower or its Restricted Subsidiaries, as the case may be, in conformity with GAAP;



(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business that are not overdue for a period of more than thirty
(30) days or that are being contested in good faith by appropriate proceedings;


 


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(c) pledges or deposits in connection with workers’ compensation, unemployment insurance and
other social security legislation;



(d) deposits to secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;



(e) Liens in existence on the date hereof listed on Schedule 7.03(e), securing
Indebtedness permitted by Section 7.02(d), provided that no such Lien is spread to
cover any additional property after the Closing Date and the amount of the Indebtedness secured
thereby is not increased;



(f) Liens securing Indebtedness of the Borrower or any Restricted Subsidiary incurred pursuant
to Section 7.02(e), provided that (i) such Liens shall be created substantially
contemporaneously with such acquisition or completion of such construction or improvement of such
fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the
property financed by such Indebtedness, (iii) the amount of Indebtedness secured by any such Lien
is not increased and (iv) the principal amount of any Indebtedness described in
Section 7.02(e)(i) secured by any such Lien shall not at any time exceed the cost of
acquiring, constructing or improving such assets;



(g) Liens created pursuant to the Security Documents;



(h) Liens constituting any interest or title of a lessor under any lease entered into by the
Borrower or any other Restricted Subsidiary in the ordinary course of its business and covering
only the Property so leased;



(i) judgment liens in respect of judgments that do not constitute an Event of Default under
clause (h) of Section 8.01;



(j) Liens under operating agreements, pooling orders and unitization agreements with respect
to obligations that are not yet due and payable or that are being contested in good faith by
appropriate proceedings; 



(k) royalties, overriding royalties, reversionary interests, and similar burdens not otherwise
prohibited hereunder granted by the Borrower or any Restricted Subsidiary with respect to its Oil
and Gas Properties (i) to the extent such burdens do not reduce the Borrower’s or any Restricted
Subsidiary’s net rights, titles and interests in ownership, development or production in its Oil
and Gas Properties below the interests reflected in each Engineering Report (and, as applicable,
each Farmout/Participation Property Certificate) or any applicable Mortgages, (ii) to the extent
relating to any Proved Properties, Farmout Properties, Participation Properties, or Open-Access
Pipeline Properties, which are described as “Permitted Encumbrances” in the Mortgages covering such
Oil and Gas Properties, and (iii) which do not operate to deprive the Borrower or any Restricted
Subsidiary of any material rights, titles or interests in respect of its assets or properties;



(l) easements, rights-of-way, restrictions, and other similar encumbrances, and minor defects
in the title that are customarily accepted in the oil and gas financing industry (i) none of which
interfere with the ordinary conduct of the business of the Borrower or any Restricted Subsidiary or
detract from the value or use of, or the Borrower’s or any Restricted Subsidiary’s rights and
interests in, the property to which they apply, and (ii) to the extent relating to any Proved
Properties, Farmout Properties, Participation Properties, or Open-Access Pipeline Properties, which
are described as “Permitted Encumbrances” in the Mortgages covering such Oil and Gas Properties;
and



(m) Liens not otherwise permitted by this Section so long as neither (i) the aggregate
outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market
value (determined as of the date such Lien is incurred) of the assets subject thereto at any time
exceeds $500,000.



Nothing contained in this Agreement or in any other Loan Document shall constitute or be construed
as a subordination of the Liens created by the Security Documents to any Permitted Lien.



 


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Section 7.04. Fundamental Changes. Enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution),
or Dispose of (in one transaction or in a series of transactions), all or substantially all of its
Property or business, except that:



(a) any Restricted Subsidiary of the Borrower may be merged or consolidated with or into the
Borrower (provided that the Borrower shall be the continuing or surviving corporation) or
with or into any other Restricted Subsidiary;



(b) any Restricted Subsidiary may Dispose of any or all of its assets (i) to the Borrower or
any other Restricted Subsidiary (upon voluntary liquidation or otherwise) or (ii) pursuant to a
Disposition permitted by Section 7.05; and



(c) any Investment expressly permitted by Section 7.08 may be structured as a merger,
consolidation or amalgamation, provided that in no event shall the Borrower or any
Restricted Subsidiary participate in a merger, consolidation, or amalgamation without being the
surviving entity.



Section 7.05. Disposition of Property. Dispose of any of its Property, whether now
owned or hereafter acquired, or, in the case of any Restricted Subsidiary, issue or sell any of
such Restricted Subsidiary’s Equity Interests to any Person, except:



(a) the sale of Hydrocarbon production in the ordinary course of business;



(b) the Disposition of (i) obsolete or worn out equipment and related Property in the ordinary
course of business and (ii) equipment and related Property that is being replaced by equipment or
related Property of comparable value and utility;



(c) the sale of Oil and Gas Properties of the Borrower and its Restricted Subsidiaries that
are not Mortgaged Properties in the ordinary course of business in an aggregate amount not to
exceed $5,000,000 during any Fiscal Year of the Borrower;



(d) Dispositions permitted by Section 7.04(b)(i);



(e) the sale or issuance of any Restricted Subsidiary’s Equity Interests to the Borrower or
any other Restricted Subsidiary; and



(f) other Dispositions of Property having a fair market value not to exceed $500,000 in the
aggregate for any Fiscal Year of the Borrower.



Section 7.06. Restricted Payments. Declare or make any Restricted Payment, or incur
any obligation (contingent or otherwise) to do so, except that:



(a) any Restricted Subsidiary may make Restricted Payments to the Borrower or any other
Restricted Subsidiary; and



(b) so long as no Default or Event of Default shall have occurred and be continuing or would
result therefrom, the Borrower may pay dividends to Holdings to be used by Holdings solely to make
regularly scheduled interest payments on (i) the NGAS Convertible Notes, and (ii) any other
unsecured Indebtedness incurred by Holdings after the date hereof (A) no part of the principal of
which is required to be paid or prepaid prior to the date occurring three (3) months after the
Termination Date and (B) that has been approved in writing by the Required Lenders prior to the
incurrence of such Indebtedness.



Section 7.07. Investments. Make, purchase, acquire, hold, maintain, or permit to
exist any Investments, except:



(a) extensions of trade credit in the ordinary course of business;



(b) Investments in Cash Equivalents;



(c) Guarantee Obligations permitted by Section 7.02;



(d) loans and advances to employees of the Borrower or any Restricted Subsidiary in the
ordinary course of business (including for travel, entertainment and relocation expenses) in an
aggregate amount for the Borrower and all Restricted Subsidiaries not to exceed $100,000 in the
aggregate at any one time outstanding;



(e) intercompany Investments by the Borrower in any Restricted Subsidiary or by any Restricted
Subsidiary in the Borrower or any other Restricted Subsidiary;


 


62









 





(f) so long as no Default or Event of Default shall have occurred and be continuing or would
result therefrom, (i) intercompany Investments in NGAS Securities, Inc. in an aggregate amount not
to exceed $100,000 during any Fiscal Year of the Borrower, and (ii) intercompany Investments in
NGAS Gathering, LLC in an aggregate amount not to exceed $100,000 during any Fiscal Year of the
Borrower; and



(g) additional Investments by the Borrower or any of its Restricted Subsidiaries;
provided that, on the date any such other Investment is made, the amount of such
Investment, together with all other Investments made pursuant to this clause (g) (in each case
determined based on the cost of such Investment) since the Closing Date, shall not at any time
exceed in the aggregate $500,000.



Section 7.08. Optional Payments and Modifications of Certain Instruments; Synthetic
Debt. (a) Make or offer to make any optional or voluntary payment, prepayment, repurchase or
redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to the
NGAS Convertible Notes, (b) make any payment, repurchase or redemption with respect to the NGAS
Convertible Notes, (c) amend, modify, waive or otherwise change, or consent or agree to any
amendment, modification, waiver or other change to, any of the terms of the NGAS Securities
Purchase Documents (other than any such amendment, modification, waiver or other change that (i)
would extend the maturity or reduce the amount of any payment of principal thereof or reduce the
rate or extend any date for payment of interest thereon and (ii) does not involve the payment of a
consent fee), or (d) incur or be obligated under, or make any payment under, any Synthetic Debt;



Section 7.09. Transactions with Affiliates. Enter into any transaction, including any
purchase, sale, lease, transfer or exchange of any asset or property, the rendering of any service
or the payment of any management, advisory or similar fees, with any Affiliate unless such
transaction is (a) in the ordinary course of business of the relevant Group Member, and (b) upon
fair and reasonable terms and conditions no less favorable to the relevant Group Member than it
would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.



Section 7.10. Sale and Leaseback Transactions. Enter into or permit to exist any
agreement or other arrangement with any Person providing for the leasing by any Group Member of
real or personal property that has been or is to be sold or transferred by such Group Member to
such Person or to any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of such Group Member.



Section 7.11. Changes in Fiscal Periods. Permit the Fiscal Year of the Borrower to
end on a day other than December 31 or change the Borrower’s method of determining Fiscal Quarters.



Section 7.12. Negative Pledge Clauses. Enter into or permit to exist or become
effective any agreement or other arrangement that prohibits, limits or imposes any condition on the
ability of any Loan Party to create, incur, assume or suffer to exist any Lien upon any of its
Property or revenues, whether now owned or hereafter acquired, other than (a) this Agreement and
the other Loan Documents and (b) any agreements governing any purchase money Liens or Capital Lease
Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby).



Section 7.13. Clauses Restricting Subsidiary Distributions. Enter into or permit to
exist or become effective any agreement or other consensual encumbrance that prohibits, limits or
imposes any condition on the ability of any Restricted Subsidiary of the Borrower to (a) make
Restricted Payments in respect of any Equity Interests of such Restricted Subsidiary held by, or
pay any Indebtedness owed to, the Borrower or any other Restricted Subsidiary of the Borrower, (b)
make loans or advances to, or other Investments in, the Borrower or any other Restricted Subsidiary
of the Borrower or (c) transfer any of its assets to the Borrower or any other Restricted
Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by
reason of (i) any restrictions existing under the Loan Documents and (ii) any restrictions with
respect to a Restricted Subsidiary imposed pursuant to an agreement that has been entered into in
connection with the Disposition of all or substantially all of the Equity Interests or assets of
such Restricted Subsidiary.



Section 7.14. Lines of Business. Enter into any business, except for those business
in which Holdings, the Borrower and its Subsidiaries are engaged on the date hereof or that are
reasonably related thereto.


 


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Section 7.15. Hedge Agreements. Purchase, assume, incur, enter into or maintain any
Hedge Agreement with any Person, except for Hedge Agreements (and derivatives transactions pursuant
to any such Hedge Agreement) entered into in the ordinary course of business with Approved Hedge
Counterparties and not for
speculative purposes, and on terms and conditions reasonably satisfactory to the
Administrative Agent, to (a) hedge or manage Hydrocarbon price risks to which the Borrower or any
Restricted Subsidiary has actual exposure as a part of its normal business operations, and (b)
hedge or manage interest rate risk existing or arising with respect to the outstanding principal
amount of any of the Loans; provided that such Hedge Agreements shall not (i) cause the
aggregate notional amount of Hydrocarbons under all such Hedge Agreements then in effect to exceed
at any time eighty percent (80%) of the “reasonably forecasted production from Proved Developed
Producing Reserves” of the Borrower and the Restricted Subsidiaries for such month during the
period such Hedge Agreement is in effect, or (ii) have a term of more than three (3) years (or, if
earlier, the Termination Date). As used in this Section, “reasonably forecasted production from
Proved Developed Producing Reserves” means the forecasted production of Hydrocarbons attributable
to Proved Developed Producing Reserves of the Borrower and its Restricted Subsidiaries as reflected
in the most recent Engineering Report delivered to the Administrative Agent pursuant to
Section 6.03, after giving effect to any pro forma adjustments approved by the Administrative Agent
for the consummation of any acquisitions or dispositions of Proved Developed Producing Reserves of
the Borrower and its Restricted Subsidiaries since the effective date of such Engineering Report.
Once the Borrower or any Restricted Subsidiary enters into any Hedge Agreement (or any derivatives
transaction pursuant to any Hedge Agreement), the terms and conditions of such Hedge Agreement and
such transaction may not be amended or modified in any material respect, nor may such Hedge
Agreement or derivative transaction be cancelled, without the prior written consent of the
Administrative Agent.



Section 7.16. Amendments to Organizational Documents. Amend or waive any right or
obligation under any of its Organizational Documents in any manner adverse to the interests of the
Administrative Agent or any Lender.



Section 7.17. Termination or Amendments to Material Contracts. (a) Cancel or
terminate any Material Contract or permit, consent to or accept any cancellation or termination
thereof, (b) amend, modify or change in any manner any term or condition of any Material Contract
or give any consent, waiver or approval thereunder, (c) waive any default or termination event
under or any breach or violation of any term or condition of any Material Contract, (d) agree in
any manner to any other amendment, modification or change of any term or condition of any Material
Contract, (e) fail to perform any of its obligations under any Material Contract, or (f) take any
other action in connection with any Material Contract that would impair the value of the interest
or rights of any Loan Party thereunder or that would be adverse to the interests of the
Administrative Agent or any Lender, except to the extent that any of the forgoing actions could not
reasonably be expected to have a Material Adverse Effect.



Section 7.18. Gas Imbalances, Take-or-Pay or other Prepayments. Purchase,
assume, enter into or permit to exist any contracts, agreements or other arrangements which allow
gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the
Borrower or any Restricted Subsidiary which would require the Borrower or any such Restricted
Subsidiary to deliver Hydrocarbons from such Oil and Gas Properties at some future time without
then or thereafter receiving full payment therefor.



Section 7.19. Terrorism Sanctions Regulations. Become a Person described or
designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign
Assets Control or in Section 1 of the Anti-Terrorism Order or engage in any dealings or
transactions with any such Person.



ARTICLE VIII




EVENTS OF DEFAULT




Section 8.01. Events of Default. If any of the following events shall occur and be
continuing:



(a) the Borrower shall fail to pay any principal of any Loan or LC Reimbursement Obligation
when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any
Loan or LC Reimbursement Obligation, or any other amount payable hereunder or under any other Loan
Document, within three (3) Business Days after any such interest or other amount becomes due in
accordance with the terms hereof; or



(b) any representation or warranty made or deemed made by or on behalf of any Loan Party
herein or in any other Loan Document or that is contained in any certificate, document, report or
financial or other statement furnished at any time under or in connection with this Agreement or
any such other Loan Document shall prove to have been inaccurate in any material respect on or as
of the date made or deemed made; or


 


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(c) any Loan Party shall default in the observance or performance of any agreement contained
in Section 6.01, 6.02, 6.03, clause (i) or (ii) of Section 6.05(a)
(with respect to Holdings and the Borrower only), Section 6.08(a), Section 6.19 or
Article VII of this Agreement or Section 5.05 or 5.07(b) of the Guarantee
and Collateral Agreement, or Holdings shall default in the observance or performance of any
agreement contained in Section 5(b) of the Holdings Pledge Agreement; or



(d) any Loan Party shall default in the observance or performance of any other agreement
contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a)
through (c) of this Section), and such default shall continue unremedied for a period of thirty
(30) days after notice to the Borrower from the Administrative Agent or any Lender; or



(e) any Group Member shall (i) default in making any payment of any principal of or settlement
amount arising from or other face amount of any Indebtedness (including any Guarantee Obligation,
but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii)
default in making any payment of any interest or any other regularly scheduled payment on any such
Indebtedness when the same becomes due and payable or (iii) default in the observance or
performance of any other agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or condition is to cause, or
to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such
holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become
due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee
Obligation) to become payable; provided, that a default, event or condition described in
clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of
Default unless, at such time, one or more defaults, events or conditions of the type described in
clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with
respect to Indebtedness the outstanding principal amount (or other outstanding payment amount) of
which exceeds in the aggregate $500,000; or



(f) (i) any Group Member shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part of its assets, or
any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any Group Member any case, proceeding or other action of a nature
referred to in clause (i) above that (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of
sixty (60) days; or (iii) there shall be commenced against any Group Member any case, proceeding or
other action seeking issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets that results in the entry of an order for any
such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within
sixty (60) days from the entry thereof; or (iv) any Group Member shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in, or fail to contest,
any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Group Member shall
generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due; or



(g) (i) any Person shall engage in any “prohibited transaction” (as defined in Section 406 of
ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency”
(as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan
or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings
shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in
the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) Holdings, the Borrower or any Commonly Controlled
Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a
Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with
all other such events or conditions, if any, could reasonably be expected to have a Material
Adverse Effect; or


 


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(h) one or more judgments or decrees for the payment of money in an aggregate amount (not paid
or fully covered by insurance as to which the relevant insurance company has acknowledged coverage)
in excess of $500,000 shall be rendered against any of the Group Members or any combination thereof
and the same shall remain
undischarged for a period of thirty (30) consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy
upon any assets of any Group Member to enforce any such judgment; or



(i) any non-monetary judgment or order shall be rendered against any Group Member that could
reasonably be expected to have a Material Adverse Effect, and there shall be any period of ten (10)
consecutive days during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or



(j) any of the Security Documents shall cease, for any reason, to be in full force and effect,
or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of
the Security Documents shall cease to be perfected, enforceable and of the same effect and priority
purported to be created thereby; or



(k) the guarantee of any Loan Party contained in Article II of the Guarantee and Collateral
Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any
Affiliate of any Loan Party shall so assert; or



(l) Holdings or the Borrower shall, in the reasonable determination of the Administrative
Agent or any Lender, default in the observance or performance of any agreement contained in
Section 6.11(a); or



(m) (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), shall become, or obtain
rights (whether by means or warrants, options or otherwise) to become, the “beneficial owner” (as
defined in Rules 13(d) 3 and 13(d) 5 under the Exchange Act), directly or indirectly, of more than
30% of any outstanding class of Equity Interests of Holdings having ordinary voting power for the
election of directors of Holdings; (ii) the board of directors of Holdings shall cease to consist
of a majority of Continuing Directors; and (iii) Holdings shall cease to own and control, of record
and beneficially, directly, 100% of each class of outstanding Equity Interests of the Borrower free
and clear of all Liens (except Liens created by the Security Documents); or



(n) an Event of Default (as defined in the NGAS Securities Purchase Agreement and the NGAS
Convertible Notes) shall have occurred and be continuing under the NGAS Securities Purchase
Agreement or the NGAS Convertible Notes;



then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or
(ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments (including
the obligation of the Issuing Bank to issue Letters of Credit) shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement
and the other Loan Documents (including all reimbursement obligations in respect of Letters of
Credit, whether or not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of
the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the
Commitments (including the obligation of the Issuing Bank to issue Letters of Credit) to be
terminated forthwith, whereupon the Commitments (including the obligation of the Issuing Bank to
issue Letters of Credit) shall immediately terminate; and (ii) with the consent of the Required
Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and the other Loan Documents
(including all reimbursement obligations in respect of Letters of Credit, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, the Borrower waives presentment,
demand, protest, notice of acceleration, notice of intent to accelerate, and all other notices of
any kind.



Section 8.02. Cash Collateralization of Letters of Credit. If any Event of Default
occurs and is continuing, the Administrative Agent shall, at the request, or may, with the consent,
of the Required Lenders require that the Borrower immediately Cash Collateralize all outstanding LC
Obligations. The Administrative Agent may, from time to time after funds are deposited in any
Collateral Account, apply funds then held in such Collateral Account to the payment of any amounts,
as shall have become or shall become due and payable by the Borrower to the Issuing Bank or the
Lenders in respect of LC Obligations.


 


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Section 8.03. Order of Payment Following an Event of Default. If an Event of Default
shall have occurred and be continuing, the Administrative Agent may, and, upon either (x) the
termination of the Commitments or the acceleration of the Loans pursuant to Section 8.01, or (y)
the requirement of the Administrative Agent that LC Obligations be Cash Collateralized pursuant to
Section 8.02, shall, apply all payments in respect of any Obligations and all funds on deposit in
any Collateral Account that are held in a Collateral Account pending application of such proceeds
as required hereunder and all other proceeds of Collateral in the following order:



(a) First, to pay Obligations constituting expense reimbursements or indemnities then
owing to the Administrative Agent;



(b) Second, to pay Obligations constituting expense reimbursements or indemnities then
owing to the Lenders and the Issuing Bank, ratably in accordance with such respective amounts then
owing to the Lenders and the Issuing Bank;



(c) Third, to pay Obligations constituting fees then owing to the Administrative
Agent, the Lenders and the Issuing Bank, ratably in accordance with such respective amounts then
owing to the Administrative Agent, the Lenders and the Issuing Bank;



(d) Fourth, ratably (i) to pay the Secured Parties all other Obligations, ratably in
accordance with the amounts of the Obligations then owing to the Secured Parties, provided,
that for purposes of this Section 8.03, the settlement amount owing to any Hedge Bank pursuant to
any terminated Hedge Agreement constituting part of the Obligations shall be deemed equal to the
Hedge Termination Value therefor, and (ii) to Cash Collateralize all outstanding LC Obligations;
and



(e) Fifth, the balance, if any, after all of the Obligations have been indefeasibly
paid in full, no Letters of Credit shall be outstanding and the Commitments have terminated or
expired, shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive
the same.



The order of priority set forth in the clauses above may at any time and from time to time be
changed by the agreement of the Administrative Agent, the Issuing Bank and the Lenders as required
pursuant to Section 10.01 without necessity of notice to or consent of or approval by the Borrower
or any other Person that is not a Lender.



ARTICLE IX




AGENCY




Section 9.01. Appointment and Authority. Each of the Lenders and the Issuing Bank
hereby irrevocably appoints the Administrative Agent to act on its behalf as the Administrative
Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take
such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent
by the terms hereof or thereof, together with such actions and powers as are reasonably incidental
thereto. The provisions of this Article are solely for the benefit of the Administrative Agent,
the Lenders and the Issuing Bank, and neither the Borrower nor any other Group Member shall have
rights as a third party beneficiary of any of such provisions.



Section 9.02. Rights as a Lender. The Person serving as the Administrative Agent
hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not the Administrative Agent and the term “Lender” or
“Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires,
include the Person serving as the Administrative Agent hereunder in its individual capacity. Such
Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or
in any other advisory capacity for and generally engage in any kind of business with any Group
Member or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative
Agent hereunder and without any duty to account therefor to the Lenders.


 


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Section 9.03. Exculpatory Provisions.



(a) The Administrative Agent shall not have any duties or obligations except those expressly
set forth herein and in the other Loan Documents. Without limiting the generality of the
foregoing, the Administrative Agent:



(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;



(ii) shall not have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan
Documents that the Administrative Agent is required to exercise as directed in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided
for herein or in the other Loan Documents), provided that the Administrative Agent shall
not be required to take any action that, in its opinion or the opinion of its counsel, may expose
the Administrative Agent to liability or that is contrary to any Loan Document or applicable law;
and



(iii) shall not, except as expressly set forth herein and in the other Loan Documents, have
any duty to disclose, and shall not be liable for the failure to disclose, any information relating
to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving
as the Administrative Agent or any of its Affiliates in any capacity.



(b) The Administrative Agent shall not be liable for any action taken or not taken by it (i)
with the consent or at the request of the Required Lenders (or such other number or percentage of
the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall
be necessary, under the circumstances as provided in Sections 10.01 and 8.01) or (ii) in the
absence of its own gross negligence or willful misconduct. The Administrative Agent shall be
deemed not to have knowledge of any Default unless and until notice describing such Default is
given to the Administrative Agent by the Borrower, a Lender or the Issuing Bank.



(c) The Administrative Agent shall not be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in or in connection with this
Agreement or any other Loan Document, (ii) the contents of any certificate, report or other
document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or conditions set
forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement,
instrument or document or (v) the satisfaction of any condition set forth in Article IV or
elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.



Section 9.04. Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely upon, and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing (including any electronic
message, Internet or intranet website posting or other distribution) believed by it to be genuine
and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative
Agent also may rely upon any statement made to it orally or by telephone and believed by it to have
been made by the proper Person, and shall not incur any liability for relying thereon. In
determining compliance with any condition hereunder to the making of a Loan, or the issuance of a
Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the
Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such
Lender or the Issuing Bank unless the Administrative Agent shall have received notice to the
contrary from such Lender or the Issuing Bank prior to the making of such Loan or the issuance of
such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel
for the Borrower), independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of any such counsel,
accountants or experts.



Section 9.05. Delegation of Duties. The Administrative Agent may perform any and all
of its duties and exercise its rights and powers hereunder or under any other Loan Document by or
through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent
and any such sub-agent may perform any and all of its duties and exercise its rights and powers by
or through their respective Related Parties. The exculpatory provisions of this Article shall
apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such
sub-agent, and shall apply to their respective activities in connection with the syndication of the
credit facilities provided for herein as well as activities as Administrative Agent.



 


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Section 9.06. Resignation of Administrative Agent.



(a) The Administrative Agent may at any time give notice of its resignation to the Lenders,
the Issuing Bank and the Borrower. Upon receipt of any such notice of resignation, the Required
Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no
such successor shall have been so appointed by the Required Lenders and shall have accepted such
appointment within thirty (30) days after the retiring
Administrative Agent gives notice of its resignation, then the retiring Administrative Agent
may on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent meeting
the qualifications set forth above provided that if the Administrative Agent shall notify the
Borrower and the Lenders that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in
accordance with such notice and
(i) the retiring
Administrative Agent shall be discharged from its duties and obligations hereunder and under the
other Loan Documents (except that in the case of any collateral security held by the Administrative
Agent on behalf of the Lenders or the Issuing Bank under any of the Loan Documents, the retiring
Administrative Agent shall continue to hold such collateral security until such time as a successor
Administrative Agent is appointed) and (ii) all payments, communications and determinations
provided to be made by, to or through the Administrative Agent shall instead be made by or to each
Lender and the Issuing Bank directly, until such time as the Required Lenders appoint a successor
Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s
appointment as Administrative Agent hereunder, such successor shall succeed to and become vested
with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative
Agent, and the retiring Administrative Agent shall be discharged from all of its duties and
obligations hereunder or under the other Loan Documents (if not already discharged therefrom as
provided above in this Section). The fees payable by the Borrower to a successor Administrative
Agent shall be the same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and
under the other Loan Documents, the provisions of this Article and Section 10.05 shall continue in
effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective
Related Parties in respect of any actions taken or omitted to be taken by any of them while the
retiring Administrative Agent was acting as Administrative Agent.



(b) Any resignation by KeyBank as Administrative Agent pursuant to this Section shall also
constitute its resignation as Issuing Bank. Upon the acceptance of a successor’s appointment as
Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of
the rights, powers, privileges and duties of the retiring Issuing Bank, (ii) the retiring Issuing
Bank shall be discharged from all of their respective duties and obligations hereunder or under the
other Loan Documents, and (iii) the successor Issuing Bank shall issue letters of credit in
substitution for the Letters of Credit, if any, outstanding at the time of such succession or make
other arrangements satisfactory to the retiring Issuing Bank to effectively assume the obligations
of the retiring Issuing Bank with respect to such Letters of Credit.



Section 9.07. Non-Reliance on Administrative Agent and Other Lenders. Each Lender and
the Issuing Bank acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender or any of their Related Parties and based on such
documents and information as it has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement. Each Lender and the Issuing Bank also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other Lender or any of
their Related Parties and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any other Loan Document or any related agreement or any document furnished
hereunder or thereunder.



Section 9.08. No Other Duties, etc. Anything herein to the contrary
notwithstanding, the Bookrunner and the Arranger listed on the cover page hereof shall not have any
powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except
in its capacity, as applicable, as the Administrative Agent, a Lender or the Issuing Bank
hereunder.



Section 9.09. Administrative Agent May File Proofs of Claim.



(a) In case of the pendency of any case, proceeding or other action of a nature or type
referred to in Section 8.01(f)(i) or any other judicial proceeding relative to any Loan Party, the
Administrative Agent (irrespective of whether the principal of any Loan or LC Obligation shall then
be due and payable as herein expressed or by declaration or otherwise and irrespective of whether
the Administrative Agent shall have made any demand on the Borrower) shall be entitled and
empowered, by intervention in such proceeding or otherwise:



(i) to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans, LC Obligations and all other Obligations that are owing and unpaid
and to file such other documents as may be necessary or advisable in order to have the claims of
the Lenders, the Issuing Bank and the Administrative Agent (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Lenders, the Issuing Bank and the
Administrative Agent and their respective agents and counsel and all other amounts due the Lenders,
the Issuing Bank and the Administrative Agent under Sections 2.04, 3.03, and 10.05) allowed in such
judicial proceeding; and


 


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(ii) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same;



and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender and the Issuing Bank to make
such payments to the Administrative Agent and, if the Administrative Agent shall consent to the
making of such payments directly to the Lenders and the Issuing Bank, to pay to the Administrative
Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent
under Sections 2.04, 3.03 and 10.05.



(b) Nothing herein contained shall be deemed to authorize the Administrative Agent to
authorize or consent to or accept or adopt on behalf of any Lender or the Issuing Bank any plan of
reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of
any Lender or the Issuing Bank to authorize the Administrative Agent to vote in respect of the
claim of any Lender or the Issuing Bank or in any such proceeding.



Section 9.10. Collateral and Guarantee Matters. The Lenders and the Issuing Bank
irrevocably authorize the Administrative Agent, at its option and in its discretion:



(a) to release any Lien on any property granted to or held by the Administrative Agent under
any Loan Document (i) upon termination of the Commitments and payment in full of all Obligations
(other than contingent indemnification obligations and Hedge Bank Obligations) and the expiration
or termination of all Letters of Credit, (ii) that is sold or to be sold as part of or in
connection with any sale expressly permitted hereunder or under any other Loan Document, or (iii)
if approved, authorized or ratified in writing in accordance with Section 10.01;



(b) to release any Guarantor from its guarantee under the Guarantee and Collateral Agreement
if such Person ceases to be a Subsidiary as a result of a transaction expressly permitted
hereunder; and



(c) to subordinate any Lien on any property granted to or held by the Administrative Agent
under any Loan Document to the holder of any Lien on such property that is permitted by
Section 7.03(f).



Upon request by the Administrative Agent at any time, the Required Lenders will confirm in
writing the Administrative Agent’s authority to release or subordinate its interest in particular
types or items of property, or to release any Guarantor from its guarantee under the Guarantee and
Collateral Agreement pursuant to this Section 9.10. In each case as specified in this
Section 9.10, the Administrative Agent will, at the Borrower’s expense, execute and deliver to the
applicable Loan Party such documents as such Loan Party may reasonably request to evidence the
release of such item of Collateral from the Liens granted under the Collateral Documents or to
subordinate its interest in such item, or to release such Guarantor from its guarantee under the
Guarantee and Collateral Agreement, in each case in accordance with the terms of the Loan Documents
and this Section 9.10.



Section 9.11. Legal Representation of Administrative Agent. In connection with the
negotiation, drafting, execution and closing of this Agreement and the other Loan Documents, or in
connection with any future legal representation relating to this Agreement or any of the Loan
Documents, Bracewell & Giuliani LLP has represented only, and shall represent only, KeyBank in its
capacity as Administrative Agent and as a Lender. Each other Lender hereby acknowledges that
Bracewell & Giuliani LLP does not represent it in connection with any such matters.


 


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ARTICLE X




MISCELLANEOUS




Section 10.01. Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or modified except in
accordance with the provisions of this Section 10.01. The Required Lenders and each Loan Party to
the relevant Loan Document may, or, with the written consent of the Required Lenders, the
Administrative Agent and each Loan Party to the relevant Loan Document may, from time to time, (a)
enter into written amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing
in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b)
waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in
such instrument, any of the requirements of this Agreement or the other Loan Documents or any
Default or Event of Default and its consequences; provided, however, that no such waiver and no
such amendment, supplement or modification shall:



(i) forgive the principal amount or extend the final scheduled date of maturity of any Loan or
LC Reimbursement Obligation, reduce the stated rate of any interest or fee payable hereunder or
extend the scheduled date of any payment thereof, or increase the amount or extend the expiration
date of any Lender’s Commitment (or reinstate any Lender’s Commitment terminated pursuant to
Section 8.01), in each case without the written consent of each Lender directly affected thereby;



(ii) eliminate or reduce the voting rights of any Lender under this Section 10.01 without the
written consent of such Lender;



(iii) reduce any percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by the Borrower of any of its rights and obligations under this Agreement
and the other Loan Documents, release all or substantially all of the Collateral in any transaction
or series of related transactions or release all or substantially all of the Subsidiary Guarantors
from their obligations under the Guarantee and Collateral Agreement, in each case without the
written consent of all Lenders;



(iv) amend or modify the definition of “Borrowing Base,” or amend, modify or waive any
provision of Section 2.02 that would result in an increase in the Borrowing Base;



(v) amend, modify or waive any provision of Article IX, or affect the rights or duties of the
Administrative Agent under this Agreement, without the written consent of the Administrative Agent;



(vi) amend, modify or waive any provision of Article III, or affect the rights or duties of
the Issuing Bank under this Agreement, without the written consent of the Issuing Bank;



(vii) amend, modify or waive Section 10.06(h) without the consent of each Granting Lender all
or part of whose Loans are being funded by an SPC at the time of such amendment, modification or
waiver;



(viii) amend, modify or waive any provision of Section 8.03 without the written consent of the
Administrative Agent, the Issuing Bank and all of the Lenders;



(ix) impose any greater restriction on the ability of any Lender to assign any of its rights
or obligations thereunder without the written consent of the Required Lenders; or



(x) amend or modify the definition of Restricted Subsidiary without the written consent of the
Administrative Agent and all of the Lenders.



Any such waiver and any such amendment, supplement or modification shall apply equally to each of
the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and
all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the
Administrative Agent shall be restored to their former position and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and
not continuing; but no such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon. Notwithstanding the foregoing, the Fee Letter may
be amended, and rights or privileges thereunder may be waived, in a writing executed by the parties
thereto. Notwithstanding anything to the contrary contained in herein, no Defaulting Lender shall
have any right to approve or disapprove any amendment, waiver or consent hereunder, except that any
Commitment of such Lender may not be increased or decreased without its consent.


 


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Section 10.02. Notices; Electronic Communication.



(a) Except in the case of notices and other communications expressly permitted to be given by
telephone (and except as provided in paragraph (b) below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopier as follows:



(i) if to the Borrower or any Restricted Subsidiary, to it at 120 Prosperous Place, Suite 201,
Lexington, Kentucky 40509, Attention: William G. Barr, III, Chief Executive Officer (Facsimile No.
(859) 263-4228; Telephone No. (859) 263-3948);



(ii) if to Holdings, to it at 120 Prosperous Place, Suite 201, Lexington, Kentucky 40509,
Attention: Michael P.
Windisch (Facsimile No. (859) 263-4228; Telephone No. (866) 711-6427);



(iii) if to the Administrative Agent, to KeyBank National Association at 8117 Preston Road,
Suite 440, Dallas, Texas 75225, Attention: Thomas Rajan, Managing Director (Facsimile No. (214)
414-2610; Telephone No. (214) 414-2580);



(iv) if to the Issuing Bank, to it at KeyBank National Association, Attention: Yvette
Dyson-Owens (Facsimile No. (216) 689-5962; Telephone No. (216) 689-4358); and



(v) if to a Lender, to it at its address (or telecopier number) set forth in its
Administrative Questionnaire.



Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall
be deemed to have been given when received; notices sent by telecopier shall be deemed to have been
given when sent (except that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next business day for the recipient).
Notices delivered through electronic communications to the extent provided in Section 10.02(b)
below, shall be effective as provided in said subsection.



(b) Notices and other communications to the Lenders and the Issuing Bank hereunder may be
delivered or furnished by electronic communication (including e-mail and Internet or intranet
websites) pursuant to procedures approved by the Administrative Agent, provided that the
foregoing shall not apply to notices to any Lender or the Issuing Bank pursuant to Article II or
Article III if such Lender or the Issuing Bank, as applicable, has notified the Administrative
Agent that it is incapable of receiving notices under such Article by electronic communication.
The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to procedures approved by it,
provided that approval of such procedures may be limited to particular notices or communications.



Unless the Administrative Agent otherwise prescribes, (i) notices and other communications
sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement
from the intended recipient (such as by the “return receipt requested” function, as available,
return e-mail or other written acknowledgement), provided that if such notice or other
communication is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on the next business day
for the recipient, and (ii) notices or communications posted to an Internet or intranet website
shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as
described in the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.



(c) Any party hereto may change its address or telecopier number for notices and other
communications hereunder by notice to the other parties hereto.



Section 10.03. No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.



Section 10.04. Survival. All covenants, agreements, representations and warranties
made by the Borrower herein and in the certificates or other instruments delivered in connection
with or pursuant to this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement and the making of any
Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any fee or any other amount payable under
this Agreement is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not expired or terminated.


 


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Section 10.05. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) EACH OF HOLDINGS AND THE
BORROWER SHALL PAY (I) ALL REASONABLE OUT-OF-POCKET EXPENSES INCURRED BY THE ADMINISTRATIVE AGENT
AND ITS AFFILIATES (INCLUDING THE REASONABLE FEES, CHARGES AND DISBURSEMENTS OF COUNSEL (INCLUDING
LOCAL COUNSEL) FOR THE ADMINISTRATIVE AGENT), AND SHALL PAY ALL FEES AND TIME CHARGES AND
DISBURSEMENTS FOR ATTORNEYS WHO MAY BE EMPLOYEES OF THE ADMINISTRATIVE AGENT, IN CONNECTION WITH
THE SYNDICATION OF THE CREDIT FACILITY PROVIDED FOR HEREIN, THE PREPARATION, NEGOTIATION,
EXECUTION, DELIVERY AND ADMINISTRATION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR ANY
AMENDMENTS, MODIFICATIONS OR WAIVERS OF THE PROVISIONS HEREOF OR THEREOF (WHETHER OR NOT THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE CONSUMMATED), (II) ALL REASONABLE
OUT-OF-POCKET EXPENSES INCURRED BY THE ISSUING BANK IN CONNECTION WITH THE ISSUANCE, AMENDMENT,
RENEWAL OR EXTENSION OF ANY LETTER OF CREDIT OR ANY DEMAND FOR PAYMENT THEREUNDER AND (III) ALL
OUT-OF-POCKET EXPENSES INCURRED BY THE ADMINISTRATIVE AGENT, EACH LENDER AND THE ISSUING BANK
(INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF COUNSEL), IN CONNECTION WITH ANY DEFAULT OR THE
ENFORCEMENT OR PROTECTION OF ITS RIGHTS (A) IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, INCLUDING ITS RIGHTS UNDER THIS SECTION, OR (B) IN CONNECTION WITH THE LOANS MADE OR
LETTERS OF CREDIT ISSUED HEREUNDER, INCLUDING ALL SUCH OUT-OF-POCKET EXPENSES INCURRED DURING ANY
WORKOUT, RESTRUCTURING OR NEGOTIATIONS IN RESPECT OF SUCH LOANS OR LETTERS OF CREDIT.



(b) THE BORROWER AND HOLDINGS, JOINTLY AND SEVERALLY, SHALL INDEMNIFY THE ADMINISTRATIVE AGENT
(AND ANY SUB-AGENT THEREOF), EACH LENDER AND THE ISSUING BANK, AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, AND DISBURSEMENTS (INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE), INCURRED BY ANY INDEMNITEE OR ASSERTED AGAINST ANY INDEMNITEE
BY ANY THIRD PARTY OR BY THE BORROWER, HOLDINGS OR ANY OTHER LOAN PARTY ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE
PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (II) ANY LOAN OR LETTER OF CREDIT OR THE USE OR
PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND
FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO
NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY ACTUAL OR ALLEGED PRESENCE
OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY ANY GROUP MEMBER, OR
ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO ANY GROUP MEMBER, OR (IV) ANY ACTUAL OR
PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR BY ANY
GROUP MEMBER, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS (X)
ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR (Y) RESULT FROM A
CLAIM BROUGHT BY ANY GROUP MEMBER AGAINST AN INDEMNITEE FOR BREACH IN BAD FAITH OF SUCH
INDEMNITEE’S OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT, IF SUCH GROUP MEMBER HAS
OBTAINED A FINAL NONAPPEALABLE JUDGMENT IN ITS FAVOR ON SUCH CLAIM AS DETERMINED BY A COURT OF
COMPETENT JURISDICTION. WITHOUT LIMITING THE FOREGOING, AND TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE BORROWER AND HOLDINGS AGREE NOT TO ASSERT AND TO CAUSE THE SUBSIDIARIES NOT TO ASSERT, AND
HEREBY WAIVES AND AGREES TO CAUSE THE SUBSIDIARIES
TO SO WAIVE, ALL RIGHTS FOR CONTRIBUTION OR ANY OTHER RIGHTS OF RECOVERY WITH RESPECT TO ALL
CLAIMS, DEMANDS, PENALTIES, FINES, LIABILITIES, SETTLEMENTS, DAMAGES, COSTS AND EXPENSES OF
WHATEVER KIND OR NATURE, UNDER OR RELATED TO ENVIRONMENTAL LAWS, THAT ANY OF THEM MIGHT HAVE BY
STATUTE OR OTHERWISE AGAINST ANY INDEMNITEE.


 


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(c) TO THE EXTENT THAT THE BORROWER OR HOLDINGS FOR ANY REASON FAILS TO INDEFEASIBLY PAY ANY
AMOUNT REQUIRED UNDER PARAGRAPH (A) OR (B) OF THIS SECTION TO BE PAID BY IT TO THE ADMINISTRATIVE
AGENT (OR ANY SUB-AGENT THEREOF), THE ISSUING BANK OR ANY RELATED PARTY OF ANY OF THE FOREGOING,
EACH LENDER SEVERALLY AGREES TO PAY TO SUCH AGENT (OR ANY SUCH SUB-AGENT), THE ISSUING BANK OR SUCH
RELATED PARTY, AS THE CASE MAY BE, SUCH LENDER’S AGGREGATE EXPOSURE PERCENTAGE (DETERMINED AS OF
THE TIME THAT THE APPLICABLE UNREIMBURSED EXPENSE OR INDEMNITY PAYMENT IS SOUGHT) OF SUCH UNPAID
AMOUNT, PROVIDED THAT THE UNREIMBURSED EXPENSE OR INDEMNIFIED LOSS, CLAIM, DAMAGE,
LIABILITY, PENALTY, ACTION, JUDGMENT, SUIT, COST, EXPENSE, OR JUDGMENT, AS THE CASE MAY BE, WAS
INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT (OR ANY SUCH SUB-AGENT) OR THE ISSUING
BANK IN ITS CAPACITY AS SUCH, OR AGAINST ANY RELATED PARTY OF ANY OF THE FOREGOING ACTING FOR THE
ADMINISTRATIVE AGENT (OR ANY SUCH SUB-AGENT) OR THE ISSUING BANK IN CONNECTION WITH SUCH CAPACITY.
THE OBLIGATIONS OF THE LENDERS UNDER THIS PARAGRAPH (c) ARE SUBJECT TO THE PROVISIONS OF
SECTION 2.13(h).



(d) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HOLDINGS AND THE BORROWER SHALL NOT
ASSERT, AND EACH OF HOLDINGS AND THE BORROWER HEREBY WAIVES, ANY CLAIM AGAINST ANY INDEMNITEE, ON
ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO
DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS AGREEMENT,
ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREOF.
NO INDEMNITEE SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY
INFORMATION OR OTHER MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER
INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.



(e) ALL AMOUNTS DUE UNDER THIS SECTION 10.05 SHALL BE PAYABLE PROMPTLY AFTER WRITTEN DEMAND
THEREFOR. THE AGREEMENTS IN THIS SECTION 10.05 SHALL SURVIVE REPAYMENT OF THE LOANS AND ALL OTHER
AMOUNTS PAYABLE HEREUNDER.



Section 10.06. Successors and Assigns; Participations and Assignments.



(a) Successors and Assigns Generally. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the neither the Borrower nor any other Loan Party may assign
or otherwise transfer any of its rights or obligations hereunder without the prior written consent
of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of
its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of
paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of
paragraph (d) of this Section, (iii) by way of pledge or assignment of a security interest subject
to the restrictions of paragraph (f) of this Section, or (iv) to an SPC (as defined in paragraph
(h) below) in accordance with the provisions of paragraph (h) of this Section (and any other
attempted assignment or transfer by any party hereto shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person (other than the
parties hereto, their respective successors and assigns permitted hereby, Participants to the
extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.


 


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(b) Assignments by Lenders. Any Lender may at any time assign to one or more
assignees all or a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment(s), and the Loans (including for purposes of this Section 10.06(b),
participations in LC Obligations) at the time owing to it; provided that any such assignment shall
be subject to the following conditions:




(i) Minimum Amounts.



(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s
Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an
Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned;



(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of
the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable
Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning
Lender subject to each such assignment, determined as of the date the Assignment and Assumption
with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is
specified in the Assignment and Assumption, as of the Trade Date) shall not be less than
$5,000,000, unless each of the Administrative Agent and, so long as no Event of Default has
occurred and is continuing, the Borrower otherwise consents (each such consent not to be
unreasonably withheld or delayed);



(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of
a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with
respect to the Loan or the Commitment assigned;



(iii) Required Consents. No consent shall be required for any assignment except to
the extent required by paragraph (b)(i)(B) of this Section and, in addition:



(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed)
shall be required unless (x) an Event of Default has occurred and is continuing at the time of such
assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;



(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or
delayed) shall be required for assignments in respect of any Commitment if such assignment is to a
Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such
Lender; and



(C) the consent of the Issuing Bank (such consent not to be unreasonably withheld or delayed)
shall be required for any assignment that increases the obligation of the assignee to participate
in exposure under one or more Letters of Credit (whether or not then outstanding).



(iv) Assignment and Assumption. The parties to each assignment shall execute and
deliver to the Administrative Agent an Assignment and Assumption, together with a processing and
recordation fee of $3,500; provided, however, that the Administrative Agent may, in
its sole discretion, waive such processing and recordation fee in the case of an assignment. The
assignee, if it is not be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire;



(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or
any of the Borrower’s Affiliates or Subsidiaries;



(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural
person; and



(vii) Limitation. No such assignment shall be permitted without the prior written
consent of the Administrative Agent until the Administrative Agent shall have notified the Lenders
that syndication of the Commitments has been completed.



Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c)
of this Section, from and after the effective date specified in each Assignment and Assumption, the
assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned
by such Assignment and Assumption, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations
under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be
entitled to the benefits of Sections 2.15, 2.16, 2.17 and 10.05 with respect to facts and
circumstances occurring prior to the effective date of such assignment. Any assignment or transfer
by a Lender of rights or obligations under this Agreement that does
not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with paragraph (d) of this
Section.


 


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(c) Register. The Administrative Agent, acting solely for this purpose as an agent of
the Borrower, shall maintain at one of its offices in Cleveland, Ohio, a copy of each Assignment
and Assumption delivered to it and a register for the recordation of the names and addresses of the
Lenders, and the Commitments of, and principal amounts of the Loans and LC Reimbursement
Obligations owing to, each Lender pursuant to the terms hereof from time to time (the
“Register”). The entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection
by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.



(d) Participations. Any Lender may at any time, without the consent of, or notice to,
the Borrower or the Administrative Agent, sell participations to any Person (other than a natural
person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a
“Participant”) in all or a portion of such Lender’s rights and/or obligations under this
Agreement (including all or a portion of its Commitment(s) and/or the Loans owing to it);
provided that (i) such Lender’s obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Borrower, the Administrative Agent and the Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender’s rights and obligations
under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to enforce this Agreement
and to approve any amendment, modification or waiver of any provision of this Agreement or any
other Loan Document; provided that such agreement or instrument may provide that such
Lender will not, without the consent of the Participant, agree to any amendment, modification or
waiver described in clause (i) of Section 10.01 that directly affects such Participant. Subject to
paragraph (e) of this Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Section 2.15 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 10.07(b) as though it were a Lender,
provided such Participant agrees to be subject to Section 10.07(a) as though it were a Lender.



(e) Limitations Upon Participant Rights. A Participant shall not be entitled to
receive any greater payment under Sections 2.15 and 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant, unless the sale of
the participation to such Participant is made with the Borrower’s prior written consent. A
Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 2.16 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to comply with
Section 2.16(e) as though it were a Lender.



(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve Bank;
provided that no such pledge or assignment shall release such Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.



(g) Electronic Execution of Assignments. The words “execution,” “signed,”
“signature,” and words of like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of which shall be of the
same legal effect, validity or enforceability as a manually executed signature or the use of a
paper-based recordkeeping system, as the case may be, to the extent and as provided for in any
applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, or
any other similar state laws based on the Uniform Electronic Transactions Act.



(h) Special Purpose Funding Vehicles. Notwithstanding anything to the contrary
contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding
vehicle identified as such in writing from time to time by the Granting Lender to the
Administrative Agent and the Borrower (an “SPC”) the option to provide all or any part of
any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement;
provided, that (i) nothing herein shall constitute a commitment by any SPC to fund any
Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any
part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms
hereof or, if it fails to do so, to make such payment to the Administrative Agent as is required by
Section 2.13(e). The making of a Loan by an SPC hereunder
shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan
were made by such



 


76









 






Granting Lender. Each party hereto hereby agrees that (i) no SPC shall be liable
for any indemnity or similar payment obligation under this Agreement for which a Lender would be
liable, (ii) no SPC shall be entitled to the benefits of Sections 2.15 and 2.16 (or any other
increased costs protection provision) and (iii) the Granting Lender shall for all purposes,
including, without limitation, the approval of any amendment or waiver of any provision of any Loan
Document, remain the Lender of record hereunder. The making of a Loan by a SPC hereunder shall
constitute utilization of the appropriate Commitment of the Granting Lender to the same extent, and
as if, such Loan was made by such Granting Lender. In furtherance of the foregoing, each party
hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior
to the date that is one year and one day after the payment in full of all outstanding commercial
paper or other senior Indebtedness of any SPC, it will not institute against, or join any other
Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding
anything to the contrary contained in this Agreement, any SPC may (i) with notice to, but without
prior consent of, the Borrower and the Administrative Agent and without payment of a processing fee
therefor, assign all or any portion of its interest in any Loan to the Granting Lender and (ii)
disclose on a confidential basis any non-public information relating to its funding of Loans to any
rating agency, commercial paper dealer or provider of any surety or guarantee or credit or
liquidity enhancement to such SPC. This subsection (h) may not be amended without the prior
written consent of each Granting Lender, all or any part of whose Loans are being funded by the SPC
at the time of such amendment.



(i) Resignation as Issuing Bank After Assignment. Notwithstanding anything to the
contrary contained herein, if at any time KeyBank assigns all of its Commitments and Loans pursuant
to Section 10.06(b), KeyBank may, upon thirty (30) days’ notice to the Borrower and the Lenders,
resign as Issuing Bank. In the event of any such resignation as Issuing Bank, the Borrower shall
be entitled to appoint from among the Lenders a successor Issuing Bank hereunder; provided,
however, that no failure by the Borrower to appoint any such successor shall affect the
resignation of as Issuing Bank, as the case may be. If KeyBank resigns as Issuing Bank, it shall
retain all the rights, powers, privileges and duties of the Issuing Bank hereunder with respect to
all Letters of Credit outstanding as of the effective date of its resignation as Issuing Bank and
all LC Obligations with respect thereto (including the right to require the Lenders to fund
participations pursuant to Section 3.04(b)). Upon the appointment of a successor Issuing Bank, (a)
such successor shall succeed to and become vested with all of the rights, powers, privileges and
duties of the retiring Issuing Bank, as the case may be, and (b) the successor Issuing Bank shall
issue letters of Credit in substitution for the Letters of Credit, if any, outstanding at the time
of such succession or make other arrangements satisfactory to KeyBank to effectively assume the
obligations of KeyBank with respect to such Letters of Credit.



(j) Notes. The Borrower, upon receipt of written notice from the relevant Lender,
agrees to issue a Note to any Lender requiring a Note to facilitate transactions of the type
described in paragraph (b) above.



Section 10.07. Adjustments; Set-Off. (a) Except to the extent that this Agreement
expressly provides for payments to be allocated to a particular Lender or Lenders, if any Lender
shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans, LC Reimbursement Obligations or other obligations
hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of
its Loans and LC Reimbursement Obligations and accrued interest thereon or other such obligations
greater than its pro rata share thereof as provided herein, then the Lender receiving such greater
proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at
face value) participations in the Loans, LC Reimbursement Obligations and such other obligations of
the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all
such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Loans, LC Reimbursement Obligations and other
amounts owing them, provided that:



(i) if any such participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase price restored to the
extent of such recovery, without interest; and



(ii) the provisions of this paragraph shall not be construed to apply to (x) any payment made
by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any
payment obtained by a Lender as consideration for the assignment of or sale of a participation in
any of its Loans or participations in LC Reimbursement Obligations to any assignee or participant,
other than to Holdings, the Borrower or any Subsidiary thereof (as to which the provisions of this
paragraph shall apply).


 


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Each of the Borrower and Holdings consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against Holdings or the Borrower rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were a direct creditor
of Holdings or the Borrower in the amount of such participation.



(b) If an Event of Default shall have occurred and be continuing, each Lender, the Issuing
Bank, and each of their respective Affiliates is hereby authorized at any time and from time to
time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final, in whatever currency) at any time held
and other obligations (in whatever currency) at any time owing by such Lender, the Issuing Bank or
any such Affiliate to or for the credit or the account of Holdings or the Borrower against any and
all of the obligations of Holdings or the Borrower now or hereafter existing under this Agreement
or any other Loan Document to such Lender or the Issuing Bank, irrespective of whether or not such
Lender or the Issuing Bank shall have made any demand under this Agreement or any other Loan
Document and although such obligations of Holdings or the Borrower may be contingent or unmatured
or are owed to a branch or office of such Lender or the Issuing Bank different from the branch or
office holding such deposit or obligated on such indebtedness. The rights of each Lender, the
Issuing Bank and their respective Affiliates under this Section are in addition to other rights and
remedies (including other rights of setoff) that such Lender, the Issuing Bank or their respective
Affiliates may have. Each Lender and the Issuing Bank agrees to notify the Borrower and the
Administrative Agent promptly after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such setoff and application.



Section 10.08. Counterparts; Integration; Effectiveness; Electronic Execution. This
Agreement may be executed in counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement and the other Loan Documents, and any separate
letter agreements with respect to fees payable to the Administrative Agent, constitute the entire
contract among the parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter hereof. Except as
provided in Section 4.01, this Agreement shall become effective when it shall have been executed by
the Administrative Agent and when the Administrative Agent shall have received counterparts hereof
that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy or other electronic imaging
means shall be effective as delivery of a manually executed counterpart of this Agreement.



Section 10.09. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.



Section 10.10. Governing Law; Jurisdiction, Etc.



(a) This Agreement shall be governed by, and construed in accordance with, the law of the
State of Ohio.



(b) Each of Holdings and the Borrower irrevocably and unconditionally submits, for itself and
its Property, to the nonexclusive jurisdiction of the courts of the State of Ohio sitting in
Cuyahoga County and of the United States District Court for the Northern District of Ohio, and any
appellate court from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each
of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such Ohio State court or, to the fullest extent
permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this
Agreement or in any other Loan Document shall affect any right that the Administrative Agent, any
Lender or the Issuing Bank may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against Holdings, the Borrower or any other Loan Party or its
properties in the courts of any jurisdiction.



(c) Each of Holdings and the Borrower irrevocably and unconditionally waives, to the fullest
extent permitted by applicable law, any objection that it may now or hereafter have to the laying
of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.


 


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(d) Each party hereto irrevocably consents to service of process in the manner provided for
notices in Section 10.02. Nothing in this Agreement will affect the right of any party hereto to
serve process in any other manner permitted by applicable law.



Section 10.11. Acknowledgements. Each of Holdings and the Borrower hereby
acknowledges that:



(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents;



(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or
duty to Holdings or the Borrower arising out of or in connection with this Agreement or any of the
other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand,
and Holdings and the Borrower, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and



(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by
virtue of the transactions contemplated hereby among the Lenders or among Holdings, the Borrower
and the Lenders.



Section 10.12. Treatment of Certain Information; Confidentiality.



(a) Each of the Administrative Agent, the Lenders and the Issuing Bank agrees to maintain the
confidentiality of the Information (as defined below), except that Information may be disclosed (i
to its Affiliates and to its and its Affiliates’ respective partners, directors, officers,
employees, agents, advisors and other representatives (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (ii) to the extent requested by any regulatory
authority purporting to have jurisdiction over it (including any self-regulatory authority, such as
the National Association of Insurance Commissioners), (iii) to the extent required by applicable
laws or regulations or by any subpoena or similar legal process, (iv) to any other party hereto,
(v) in connection with the exercise of any remedies hereunder or under any other Loan Document or
any action or proceeding relating to this Agreement or any other Loan Document or the enforcement
of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially
the same as those of this Section, to (A) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this Agreement or (B) any
actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating
to the Borrower and its obligations, (vii) with the consent of the Borrower or (viii) to the extent
such Information (A) becomes publicly available other than as a result of a breach of this
Section or (B) becomes available to the Administrative Agent, any Lender, the Issuing Bank or any
of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.



(b) For purposes of this Section, “Information” means all information received from the
Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of
their respective businesses, other than any such information that is available to the
Administrative Agent, any Lender or the Issuing Bank on a nonconfidential basis prior to disclosure
by the Borrower or any of its Subsidiaries, provided that, in the case of information received from
the Borrower or any of its Subsidiaries after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own confidential
information.




 


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Section 10.13. Interest Rate Limitation.



(a) It is the intent of the Administrative Agent, the Lenders and the Borrower to conform to
and contract in strict compliance with all applicable usury laws from time to time in effect.
Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or
agreed to be paid under the Loan Documents shall not exceed the Highest Lawful Rate. If the
Administrative Agent or any Lender shall receive interest in an amount that exceeds the Highest
Lawful Rate, the excess interest shall be applied to the principal of the Loans and LC
Reimbursement Obligations or, if it exceeds such unpaid principal, refunded to the Borrower. In
determining whether the interest contracted for, charged, or received by any Agent or any Lender
exceeds
the Highest Lawful
Rate, such Person may, to the extent permitted by applicable law, (i) characterize any payment
that is not principal as an expense, fee, or premium rather than interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal or
unequal parts the total amount of interest throughout the contemplated term of the Obligations
hereunder. The right to accelerate maturity of the Loans and the other Obligations does not
include the right to accelerate any interest which has not otherwise accrued on the date of such
acceleration, and the Administrative Agent and the Lenders do not intend to charge or receive any
unearned interest in the event of acceleration.



(b) If at any time the interest rate (the “Stated Rate”) called for under this
Agreement or any other Loan Document exceeds or would exceed the Highest Lawful Rate, the rate at
which interest shall accrue thereunder shall automatically be limited to the Highest Lawful Rate,
and shall remain at the Highest Lawful Rate until the total amount of interest accrued equals the
total amount of interest which would have accrued but for the operation of this sentence.
Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate would again
exceed the Highest Lawful Rate, in which case the immediately preceding sentence shall apply.



Section 10.14. Headings. Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement and shall not affect
the construction of, or be taken into consideration in interpreting, this Agreement.



Section 10.15. Time of the Essence. Time is the essence of this Agreement and the
other Loan Documents.



Section 10.16. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT
OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.



Section 10.17. USA PATRIOT Act Notice. Each Lender that is subject to the Act (as
hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender)
hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain,
verify and record information that identifies each Loan Party, which information includes the name
and address of each Loan Party and other information that will allow such Lender or the
Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act.



 


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Section 10.18. No Advisory or Fiduciary Responsibility. In connection with all
aspects of each transaction contemplated hereby, the Borrower and Holdings each acknowledge and
agree, and acknowledge their respective Affiliates’ understanding, that: (a) the credit facility
provided for hereunder and any related arranging or other services in connection therewith
(including in connection with any amendment, waiver or other modification hereof or of any other
Loan Document) are an arm’s-length commercial transaction between the Borrower, Holdings and their
respective Affiliates, on the one hand, and the Administrative Agent and, the Arranger, on the
other hand, and each of the Borrower and Holdings is capable of evaluating and understanding and
understands and accepts the terms, risks and conditions of the transactions contemplated hereby and
by the other Loan Documents (including any amendment, waiver or other modification hereof or
thereof); (b) in connection with the process leading to such transaction, the Administrative Agent
and the Arranger each is and has been acting solely as a principal and is not the financial
advisor, agent or fiduciary, for the Borrower, Holdings or any of their respective Affiliates,
stockholders, creditors or employees or any other Person; (c) neither the Administrative Agent nor
the Arranger has assumed or will assume an advisory, agency or fiduciary responsibility in favor of
the Borrower or Holdings with respect to any of the transactions contemplated hereby or the process
leading thereto, including with respect to any amendment, waiver or other modification hereof or of
any other Loan Document (irrespective of whether the Administrative Agent or the Arranger has
advised or is currently advising the Borrower, Holdings or any of their respective Affiliates on
other matters) and neither the
Administrative
Agent nor,
the Arranger has any obligation to the
Borrower, Holdings or any of their respective Affiliates with respect to the transactions
contemplated hereby except those obligations expressly set forth herein and in the other Loan
Documents; (d) the Administrative Agent
and, the Arranger and their respective Affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Borrower, Holdings and their
respective Affiliates, and neither the Administrative Agent nor the Arranger has any obligation to
disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (e)
the Administrative Agent and the Arranger have not provided and will not provide any legal,
accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby
(including any amendment, waiver or other modification hereof or of any other Loan Document) and
each of the Borrower and Holdings has consulted its own legal, accounting, regulatory and tax
advisors to the extent it has deemed appropriate. Each of the Borrower and Holdings hereby waives
and releases, to the fullest extent permitted by law, any claims that it may have against the
Administrative Agent and the Arranger with respect to any breach or alleged breach of agency or
fiduciary duty.



Section 10.19. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.



Section 10.20. Effect of this Agreement. The Existing Revolving Loans made by the
Lenders to the Borrower under the Existing Credit Agreement shall, effective as of the Closing
Date, be Loans evidenced and governed by this Agreement and the other Loan Documents in all
respects and for all purposes. This Agreement amends and restates the Existing Credit Agreement in
its entirety and is entitled to the benefit of all existing Loan Documents. Any reference in any
other Loan Document to the “Credit Agreement,” “thereunder,” “therein,” “thereof” or words of like
import referring to the Existing Credit Agreement shall mean and refer to this Agreement. Any
reference in any other Loan Document to the “Obligations” or any similar term including or
referencing obligations under the Existing Credit Agreement shall include and reference the
Obligations as defined in this Agreement. All Obligations under the Existing Credit Agreement and
the other Loan Documents shall continue to be outstanding except as expressly modified by this
Agreement and shall be governed in all respects by this Agreement and the other Loan Documents, it
being agreed and understood by the parties hereto that this Agreement does not constitute a
novation, satisfaction, payment or reborrowing of any Obligation under the Existing Credit
Agreement or any other Loan Document except as expressly modified by this Agreement, nor, except as
expressly provided herein, does it operate as a wavier of any right, power or remedy of any Lender
under any Loan Document. The Liens granted pursuant to any Loan Documents shall, as modified
hereby, continue in full force and effect, and are hereby affirmed, with respect to this Agreement
and the Obligations as defined herein. In the event of a conflict between the terms and provisions
of this Agreement and the terms and provisions of any other Loan Document, the terms and provisions
of this Agreement shall govern.


 


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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered by their proper and duly authorized officers as of the day and year first above written.



	 	 	 	 	 
	 	NGAS RESOURCES, INC.,

a British Columbia corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	DAUGHERTY PETROLEUM, INC.,

a Kentucky corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	KEYBANK NATIONAL ASSOCIATION,

as the Administrative Agent, as a Lender and as

the Issuing Bank

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	COMERICA BANK,

as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	YAL BANK OF CANADA,

as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



 


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